Last Update23 Oct 25Fair value Decreased 0.0092%
Illinois Tool Works’ analyst price target has increased modestly from $261.00 to $265.00. Analysts cite upward earnings estimate revisions and expectations for continued multiple expansion across the machinery sector.
Analyst Commentary
Recent analyst updates on Illinois Tool Works reflect a mix of optimism and caution regarding the company’s outlook and valuation. The following summarizes the key bullish and bearish perspectives from recent research coverage.
Bullish Takeaways- Bullish analysts cite upward earnings estimate revisions as a driver for the recent lift in price targets. This reflects positive momentum in company performance.
- Expectations for continued multiple expansion within the machinery sector suggest room for valuation growth, particularly if market sentiment toward industrial stocks remains favorable.
- Recent model adjustments highlight potential for further gains if the company continues to execute well and sector trends remain supportive.
- Although Illinois Tool Works is not a top conviction pick among all analysts, improving earnings outlooks are viewed as a key catalyst for potential share appreciation.
- Some bearish analysts note that much of the cyclical organic sales recovery is already priced in by investors. This may limit further upside surprise unless there is a marked turnaround in consumer or residential spending.
- Concerns persist regarding limited scope for meaningful outperformance if end-market recoveries stall or slow from current levels.
- The persistence of an Underperform or Underweight rating by certain firms underscores ongoing caution about valuation, especially as multiples in the sector have already expanded considerably.
What's in the News
- Board of Directors authorized a 7% increase in the dividend payout, raising the quarterly dividend by $0.11 per share. The new dividend of $1.61 per share will be paid on October 10, 2025, to shareholders of record as of September 30, 2025. (Key Developments)
- Completed the repurchase of 1,500,000 shares for $361.14 million between April 1 and June 30, 2025, bringing the total buyback under the current program to nearly 9 million shares valued at over $2.2 billion. (Key Developments)
- Raised 2025 GAAP EPS guidance to a range of $10.35 to $10.55 per share, projecting overall revenue growth of 1% to 3% and organic growth of flat to 2%. (Key Developments)
Valuation Changes
- Fair Value: Updated from $261.02 to $261.00, a negligible decrease of $0.02 per share.
- Discount Rate: Increased slightly from 8.32% to 8.34%, reflecting a moderate change in risk assumptions or required returns.
- Revenue Growth: Marginally decreased from 3.89% to 3.86%, indicating a slightly more cautious growth outlook.
- Net Profit Margin: Increased from 20.17% to 20.29%, suggesting improved profitability projections.
- Future P/E: Decreased modestly from 26.02x to 25.89x, signaling a minor reduction in projected valuation multiples.
Key Takeaways
- Customer-backed innovation and decentralized structure enhance ITW's growth and flexibility, driving market share gains and protecting earnings in dynamic market conditions.
- Strategic manufacturing and enterprise initiatives help mitigate tariff impacts and expand margins, supporting steady revenue growth across diversified sectors.
- Declines in key segments, regional challenges, and tariff impacts could destabilize revenue and margins, threatening financial stability and future profitability.
Catalysts
About Illinois Tool Works- Manufactures and sells industrial products and equipment in the United States and internationally.
- ITW is focusing on above-market organic growth through customer-backed innovation, aiming to enhance revenue by offering differentiated products and services across its diversified portfolio.
- The company’s 90%-plus produce where we sell manufacturing strategy mitigates tariff impacts, which could help maintain or improve net margins by reducing costs associated with tariffs.
- Enterprise initiatives are projected to contribute 100 basis points or more to margin expansion, independent of volume, suggesting that ITW is well-positioned to improve operating margins.
- Strong growth in the automotive sector, particularly in the rapidly expanding EV market in China, is expected to drive revenue growth and market share gains, partially offsetting weaknesses in other regions.
- ITW's decentralized and close-to-customer structure allows flexibility and rapid response to changing market conditions, which can protect earnings by effectively managing costs and seizing revenue opportunities in volatile environments.
Illinois Tool Works Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Illinois Tool Works's revenue will grow by 3.7% annually over the next 3 years.
- Analysts assume that profit margins will shrink from 21.3% today to 20.4% in 3 years time.
- Analysts expect earnings to reach $3.6 billion (and earnings per share of $12.8) by about September 2028, up from $3.4 billion today. The analysts are largely in agreement about this estimate.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.5x on those 2028 earnings, up from 22.7x today. This future PE is greater than the current PE for the US Machinery industry at 24.7x.
- Analysts expect the number of shares outstanding to decline by 1.29% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.2%, as per the Simply Wall St company report.
Illinois Tool Works Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The company's organic growth was down 1.6% and total revenue declined by 3.4% in the first quarter, primarily due to currency translation and product line simplification, potentially impacting future revenue stability.
- The automotive segment is facing regional challenges, with North American builds expected to be down high single digits, which could strain ITW's ability to achieve its projected 200 to 300 basis points outperformance in builds, affecting revenue and earnings.
- There are concerns over the impact of tariffs, despite mitigation efforts, as well as uncertainties in customer demand, which could pose risks to maintaining net margins and achieving EPS neutrality.
- The Test & Measurement and Electronics segment faced a 5% revenue decline due to difficult comparisons and restructuring costs, which are detrimental to operating margins and might continue affecting profitability.
- The construction products segment experienced a 7% decline in organic growth, with operating margins remaining flat, highlighting potential vulnerability to economic downturns in housing and construction, impacting both revenue and earnings.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $258.906 for Illinois Tool Works based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $290.0, and the most bearish reporting a price target of just $215.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $17.6 billion, earnings will come to $3.6 billion, and it would be trading on a PE ratio of 25.5x, assuming you use a discount rate of 8.2%.
- Given the current share price of $262.18, the analyst price target of $258.91 is 1.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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