Industrial tool maker Illinois Tool Works Inc. (NYSE:) hosted its Investors Day 2017 on Dec 1. The company focused on its long-term growth targets and also initiated forecast for 2018. A brief discussion on the event has been provided below.
For the five years from 2018 to 2022, the company anticipates to gain from its solid product portfolio and growth strategies. From 2018 and beyond, it expects organic revenue growth to be in the 3-5% range, operating margin to be in excess of 25%, incremental margin to be 35% and earnings per share to grow 8-10% in each year. Also, after-tax return on invested capital is projected to be above 20%. Free cash flow will likely be more than 100% of net income. By 2020, the company anticipates distributing 50% of its free cash flow, up from the current distribution rate of 43%.
In addition, Illinois Tool Works initiated its financial guidance for 2018. The company anticipates GAAP earnings to be within $7.05-$7.25 per share. Organic revenue growth is predicted to be within 3-4% and operating margin to be 25-25.5%. The projections for 2017 have been reaffirmed, with earnings per share still anticipated to be $6.62-$6.72, reflecting growth of 17% at mid-point from the previous year.
In the last three months, the company’s shares have yielded 20.8% return, outperforming 13.5% rally recorded by the industry it belongs to. We believe that better-than-expected third-quarter results, with an earnings beat of 3.64%, primarily drove the company’s share price.
Also, stock’s earnings estimates for 2017 have been revised upward by five brokerage firms while estimates for 2018 have been raised by five firms and lowered by one in the last 60 days. Currently, the Zacks Consensus Estimate is pegged at $6.69 for 2017 and $7.14 for 2018, reflecting growth of 3.1% and 0.7% from their respective 60-day ago tallies.
Illinois Tool Works Inc. Price and Consensus
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Illinois Tool Works Inc. Price and Consensus | Illinois Tool Works Inc. Quote
Zacks Rank & Key Picks
With a market capitalization of $56.5 billion, Illinois Tool Works carries a Zacks Rank #3 (Hold). Despite the company’s solid growth prospects, we believe that adverse impact of price/costs on margins in 2017 as well as risks from unfavorable foreign currency movements, industry rivalry, volatilities in input price & supply and economic uncertainties remain concerns.
Some better-ranked stocks in the industry are Kadant Inc. (NYSE:) , Sun Hydraulics Corporation (NASDAQ:) and Altra Industrial Motion Corporation (NASDAQ:) . While Kadant and Sun Hydraulics sport a Zacks Rank #1 (Strong Buy), Altra Industrial Motion carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kadant pulled off an average positive earnings surprise of 20.32% in the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward in the last 60 days.
Sun Hydraulics delivered an average positive earnings surprise of 9.58% in the trailing four quarters. Also, bottom-line expectations for 2017 and 2018 improved over the past 60 days.
Altra Industrial Motion’s financial performance was impressive, with an average positive earnings surprise of 17.30% in the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.
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