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Illinois Tool Works Inc. (ITW - Free Report) stands to benefit from its diversified businesses, strong product portfolio and healthy liquidity position. The company’s enterprise strategy, including business structure simplification, portfolio management and strategic sourcing, has been proving beneficial.
For instance, its enterprise initiatives contributed 110 basis points (bps) to its operating margin in the fourth quarter of 2021. For 2022, Illinois Tool expects revenue growth of 7.5-10.5% on a year-over-year basis.
The company’s acquisition of MTS Systems Corporation’s test and simulation business (in December 2021) is expected to boost its product offering and expand its footprints in various end markets. In the fourth quarter, the buyout boosted its sales by 1.3% year over year. For 2022, the company anticipates the MTS buyout to increase sales by $400-$500 million.
The company’s policy of rewarding shareholders handsomely through dividend payments and share buybacks will work in its favor. In 2021, it paid out dividends worth $1,463 million and repurchased shares worth $1 billion. In addition, it increased the quarterly dividend rate by 7% in August 2021. Notably, the company intends to buy back $1.5 billion worth of shares in 2022.
However, Illinois Tool has been experiencing escalating costs of sales over time. In fourth-quarter 2021, its cost of sales, and selling, general and administrative expenses jumped 9.6% and 11.5%, respectively, on a year-over-year basis. Further rise in costs might weigh on its margins in the quarters ahead.
For 2022, it anticipates supply-chain-related headwinds to persist and impact its operating margin by 50 bps year over year.
The company’s high-debt profile also poses a concern. Its long-term debt balance was $6,909 million at the end of fourth-quarter 2021. Any further increase in debt levels can raise the company’s financial obligations.
Image Source: Zacks Investment Research
In the past year, this Zacks Rank #3 (Hold) stock has lost 6.4% compared with the industry’s decline of 7.2%.
Key Picks
Some better-ranked companies from the same space are discussed below.
Nordson Corporation (NDSN - Free Report) presently carries a Zacks Rank #2 (Buy). The company delivered a four-quarter earnings surprise of 9.85%, on average.
Nordson’s earnings estimates have been unchanged for fiscal 2022 (ending October 2022) in the past 30 days. Its shares have risen 11.8% in the past year.
Standex International Corporation (SXI - Free Report) presently has a Zacks Rank #2. Its earnings surprise in the last four quarters was 5.85%, on average.
In the past 30 days, Standex’s earnings estimates have been unchanged for fiscal 2022 (ending June 2022). SXI’s shares have gained 6.1% in the past year.
Ferguson plc (FERG - Free Report) presently carries a Zacks Rank #2. Its earnings surprise in the last reported quarter was 11.56%.
In the past 30 days, Ferguson’s earnings estimates have increased 6.5% for fiscal 2022 (ending July 2022). FERG’s shares have gained 7.2% in the past year.
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Illinois Tool (ITW) Exhibits Strong Prospects Despite Risks
Illinois Tool Works Inc. (ITW - Free Report) stands to benefit from its diversified businesses, strong product portfolio and healthy liquidity position. The company’s enterprise strategy, including business structure simplification, portfolio management and strategic sourcing, has been proving beneficial.
For instance, its enterprise initiatives contributed 110 basis points (bps) to its operating margin in the fourth quarter of 2021. For 2022, Illinois Tool expects revenue growth of 7.5-10.5% on a year-over-year basis.
The company’s acquisition of MTS Systems Corporation’s test and simulation business (in December 2021) is expected to boost its product offering and expand its footprints in various end markets. In the fourth quarter, the buyout boosted its sales by 1.3% year over year. For 2022, the company anticipates the MTS buyout to increase sales by $400-$500 million.
The company’s policy of rewarding shareholders handsomely through dividend payments and share buybacks will work in its favor. In 2021, it paid out dividends worth $1,463 million and repurchased shares worth $1 billion. In addition, it increased the quarterly dividend rate by 7% in August 2021. Notably, the company intends to buy back $1.5 billion worth of shares in 2022.
However, Illinois Tool has been experiencing escalating costs of sales over time. In fourth-quarter 2021, its cost of sales, and selling, general and administrative expenses jumped 9.6% and 11.5%, respectively, on a year-over-year basis. Further rise in costs might weigh on its margins in the quarters ahead.
For 2022, it anticipates supply-chain-related headwinds to persist and impact its operating margin by 50 bps year over year.
The company’s high-debt profile also poses a concern. Its long-term debt balance was $6,909 million at the end of fourth-quarter 2021. Any further increase in debt levels can raise the company’s financial obligations.
Image Source: Zacks Investment Research
In the past year, this Zacks Rank #3 (Hold) stock has lost 6.4% compared with the industry’s decline of 7.2%.
Key Picks
Some better-ranked companies from the same space are discussed below.
Nordson Corporation (NDSN - Free Report) presently carries a Zacks Rank #2 (Buy). The company delivered a four-quarter earnings surprise of 9.85%, on average.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nordson’s earnings estimates have been unchanged for fiscal 2022 (ending October 2022) in the past 30 days. Its shares have risen 11.8% in the past year.
Standex International Corporation (SXI - Free Report) presently has a Zacks Rank #2. Its earnings surprise in the last four quarters was 5.85%, on average.
In the past 30 days, Standex’s earnings estimates have been unchanged for fiscal 2022 (ending June 2022). SXI’s shares have gained 6.1% in the past year.
Ferguson plc (FERG - Free Report) presently carries a Zacks Rank #2. Its earnings surprise in the last reported quarter was 11.56%.
In the past 30 days, Ferguson’s earnings estimates have increased 6.5% for fiscal 2022 (ending July 2022). FERG’s shares have gained 7.2% in the past year.