Manufacturing is back! Illinois Tool Works Inc. (ITW) recently saw revenue in the first quarter jump 17.4% and it was equally as strong in North America as internationally. This Zacks #1 Rank (strong buy) is still attractively valued at 14.7x forward estimates.
Illinois Tool Works manufactures industrial products and specialty systems in 52 countries. As we’ve seen over the past few months, global manufacturing has been leading the recovery and ITW is directly in the middle of it.
It manufactures a variety of items including steel and plastic products used in industrial shipping, arc welding equipment, metal and plastic components for autos and trucks, tools and fasteners for construction and commercial food equipment.
Additionally, it makes decorative surfaces for countertops and flooring, polymers and fluids such as adhesives, sealants and janitorial supplies and plastic and foil consumer packaging.
Illinois Tool Works Surprised on the Zacks Consensus Estimate
On Apr 26, Illinois Tool Works reported its first quarter results and beat the Zacks Consensus Estimate by 8.3%.
Earnings per share were 91 cents, surprising by 7 cents per share. This was also 30% higher than the year ago period.
Revenue rose 17.4% to $4.4 billion compared to a year ago. Organic North American revenue jumped 12.2% while organic international revenue climbed 11%.
Transportation and Power Systems Especially Hot
Transportation segment revenue rose 23.6% due to ongoing strength in automotive OEM car builds which rose 15.7% worldwide in the first quarter.
Power Systems and Electronics also boosted the quarter as revenue increased 20.8% primarily due to strong end market demand. North American welding organic revenue grew 27.4%. Demand from heavy-equipment OEM’s fueled welding revenue.
The company’s PC board fabrication business also jumped 16% due to strong demand for consumer electronics.
Operating margins also improved by 110 basis points to 15.6%.
Raised Full Year Guidance
The company is bullish about the rest of 2011. It believes that most of its end markets will remain relatively strong throughout the remainder of the year.
It raised its full year guidance to the range of $4.16 to $4.34, which includes a one-time 33 cent per share benefit recorded in the first quarter. Prior guidance, excluding the one-timer, was $3.60 to $3.84.
Zacks Consensus Estimates Jump
Given the earnings surprise and raised guidance, it’s not surprising that analysts have been raising their estimates as well.
9 estimates have been revised higher for 2011 in the past week, pushing the Zacks Consensus up to $3.98 from $3.78 per share. This is at the high end of the company’s guidance range (if you factor in the 33 cent one time benefit.)
Earnings are expected to grow 31%.
The double digit earnings growth is expected to continue in 2012, with 14 estimates raised for the full year. The Zacks Consensus has jumped to $4.57 from $4.41 per share in the last 7 days. That is earnings growth of 14.7%.
Shares Near 5-Year High
Shares jumped on the earnings news and are now trading close to 2008 highs.
However, there is still value to be found. In addition to a forward P/E under 15, Illinois Tool Works has a price-to-book ratio of 2.8, which is under the 3.0 cut-off usually associated with a “value” stock.
Additionally, shareholders get a solid return on equity (ROE) of 18.1% and a dividend that is currently yielding 2.3%.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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