Illinois Tool Works Inc. ITW seems an appropriate fit in the portfolio of investors seeking exposure in the manufacturing space. Solid fundamentals, healthy growth opportunities and friendly shareholder policy justify the investment appeal of this manufacturer of specialty systems and engineered products. It presently carries Zacks Rank #2 (Buy).
The company is based in Glenview, IL, and has a $64.1-billion market capitalization. It belongs to the Zacks Manufacturing â€“ General Industrial industry, which comes under the ambit of the Zacks Industrial Products sector. Notably, the industry is currently in the top 24% (with a rank of 62) of more than 250 Zacks industries.
In the past year, the companyâ€™s shares have gained 11.6% compared with the industryâ€™s growth of 8.3%.
Below we have discussed why it is prudent to invest in Illinois Tool now.
Diversified Businesses: The company has a solid product portfolio â€” including sealants, fasteners, commercial food equipment, welding equipment, product coding and marking equipment, and adhesives. Such a wide range of products are used by customers in general industrial, automotive, consumer durables, food retail, energy, beverage, construction and other end markets.
Also, the company has wide operations across the globe, with products being solid in 53 countries. Such diversity enables it to make for the losses in one or more markets with benefits in others.
Tailwinds: The companyâ€™s enterprise strategy has been proving beneficial over time. The strategy â€” comprising of Business Structure Simplification, Portfolio Management and Strategic Sourcing â€” boosted its operating margin by 120 basis points (bps) in the third quarter of 2020. Notably, the strategy contributed 100 bps to operating margin in the second quarter of 2020.
In addition, a healthy liquidity position â€” comprising $2.2 billion available cash and $2.5 billion of liquidity under revolving credit facility â€” as well as focus on product innovation, cost-reduction actions and strengthening supply chain are boons for the company.
Reward to Shareholders: Illinois Tool believes in rewarding shareholders handsomely through dividend payouts and buyback of shares. In the first three quarters of 2020, the company paid out $1,019 million as dividends to shareholders and repurchased shares worth $706 million. Notably, the payout represents an increase of 4.3% from the year-ago comparable period, while the buyback represents a decline of 37.2%.
It is worth noting here that that the buyback activities were temporarily halted in March due to the pandemic. As for the dividends, the quarterly rate has been hiked by 6.5% in August this year. The rate presently is pegged at $1.14.
Earnings Estimate Trend: In the past 60 days, the companyâ€™s earnings estimates have been increased, suggesting positive sentiments for the stock. Notably, the Zacks Consensus Estimate for Illinois Toolâ€™s earnings is pegged at $6.35 for 2020 and $7.49 for 2021, reflecting growth of 0.2% and 0.4% from the 60-day-ago numbers.
Also, estimates for the fourth quarter of 2020 inched up 0.6% to $1.75 in the past 60 days. Two upward revision revisions in estimates were recorded for the fourth quarter, 2020 and 2021.
Other Key Picks
Some other top-ranked stocks in the industry are EnPro Industries, Inc. NPO, Kaman Corporation KAMN and Graco Inc. GGG. While both EnPro and Kaman currently sport a Zacks Rank #1 (Strong Buy), Graco carries a Zacks Rank #2. You can see the complete list of todayâ€™s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for EnPro and Kaman have improved for the current year, while have been unchanged for Graco. Further, the earnings surprise for the last reported quarter was 109.38% for EnPro, 70.73% for Kaman and 40.48% for Graco.
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