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Illinois Tool Hits a New 52-Week High

Zacks Equity Research

Shares of Illinois Tool Works Inc. (ITW) scaled a new 52-week high of $88.86 during its trading session on Jun 6. This apex improved from the last 52-week high of $88.00 reached on May 13.

Illinois Tool Works closed the session at $88.49, reflecting a solid year-to-date return of 29.9%. The trading volume for the session was 1.67 million shares. Earnings estimate revisions for 2014 and 2015 and an expected earnings growth rate of 9.3% for the next five years indicate further upward potential for this industrial tool maker.

Growth Drivers

The much awaited divestiture of Illinois Tool Works’ Industrial Packaging business to the Carlyle Group closed on May 1, 2014. Since then, the company’s share price has grown 3.8%. To negate the dilutive impact of the transaction, the company has accelerated its share buyback program and anticipates completing substantial portion of the share repurchase in second-quarter 2014.

Additionally, Illinois Tool Works stands to gain from improvement in the construction and auto markets in Europe as well as new products introduction in the Food Equipment segment. Enterprise Initiatives continues to be a boon and is expected to contribute 100 basis points (bps) to operating margin in second-quarter 2014.

Also, Illinois Tool Works reported impressive results for first-quarter 2014 with earnings coming in at $1.01 per share, up 14.8% year over year and 3.1% above the Zacks Consensus Estimate of $0.98. Revenues rose 4.4% due to strong performance in North America and internationally. Among end markets, Automotive OEM, Construction Products, Food Equipment and Polymers and Fluids exhibited sturdy results.

Improving operating performance and an accelerated divestiture-related share repurchase program prompted Illinois Tool to increase its 2014 earnings guidance from $4.30−$4.50 per share to the $4.45−$4.65 per share range. Stellar quarterly results, a robust outlook for 2014 and completed divestiture of Industrial Packaging business have made us hopeful of a better performance in the quarters ahead.

Estimate Revisions Show Potency

In the last 60 days, the Zacks Consensus Estimate for Illinois Tool Works has gone up 2.2% to $4.56 for 2014 and increased 2.3% for 2015. The consensus estimate also reflects year-over-year growth of 25.6% for 2014 and 14.7% for 2015.

Illinois Tool Works presently has a market capitalization of $36.5 billion and carries a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include Gorman-Rupp Co. (GRC), Blount International Inc. (BLT) and Nordson Corporation (NDSN). While Gorman-Rupp sports a Zacks Rank #1 (Strong Buy), Blount International and Nordson hold a Zacks Rank #2 (Buy).

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