Illinois Tool Works's Ability To Drive Growth And Margin Leverage Getting Tested

Even the best-run companies are still subject to the laws of gravity, and valuations got pretty high among the top-tier multi-industrials early this year. Illinois Tool Works (ITW) was one of the more expensive names then, but I’m still surprised that the subsequent correction has seen it underperform some industrial peers like Ingersoll-Rand (IR) and Dover (DOV).

Looking ahead, 2018 is likely to be a year where ITW’s ability to drive organic growth and ongoing margin leverage is going to get tested a little more strenuously. I do have great respect for the quality of ITW’s operations, and its options to grow through M&A, but I do have some concerns that sell-side margin expectations are aggressive. Valuation being what it is, I would lean more toward names like Honeywell (HON) and Eaton (ETN), but if the shares were to fall into the $130s without a significant deterioration in the economic environment, I’d take another look.

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Illinois Tool Works's Ability To Drive Growth And Margin Leverage Getting Tested