Illinois Tool Works
ITW
$272.28
+0.40%
Illinois Tool Works is a diversified industrial manufacturer operating seven business segments — Automotive OEM, Food Equipment, Test & Measurement and Electronics, Welding, Polymers & Fluids, Construction Products, and Specialty Products — that together span vehicle components, commercial kitchen equipment, inspection and analysis instruments, welding consumables, adhesives and coatings, building fasteners, and medical/packaging/HVAC/airport ground equipment. Its competitive identity rests on a decentralized, 80/20 operating philosophy that concentrates resources on the largest customers and highest-margin product lines, producing segment-leading margins and returns on capital that are unusual for a multi-industry industrial conglomerate with no segment exceeding roughly one-fifth of revenue. The current investor debate centers on whether ITW's margin-expansion story can persist against soft industrial demand, tariff and input-cost pressure, and a sluggish automotive and construction backdrop, with the stock's recent underperformance versus the S&P 500 sharpening the question of whether the premium multiple is still earned. Commentary around the name has framed it as a durable dividend grower and quality compounder rather than a cyclical recovery play, with the board's continued quarterly dividend declarations reinforcing the shareholder-return narrative even as analysts remain split on near-term upside.…
ITW
Illinois Tool Works
$272.28
Related headlines
Investment Opinion: Should I buy ITW Today?
Rating: Hold. ITW is a high-quality compounder with a 26.67% operating margin and 6.12% revenue growth, but at $272.28 it trades at 23.41x trailing earnings — upper-middle of its historical range — with only 8.2% upside to the 14-analyst average target of $294.57 and a consensus recommendation of hold (mean 3.25). The core thesis is that quality is fully priced: investors are paying a premium for margin durability without a clear catalyst for re-rating.
Supporting evidence is mixed but tilts toward patience. Revenue grew 6.12% year-over-year to $4.301 billion in Q2 2026 and 7.1% sequentially, while net margin held at 18.95% and gross margin at 44.13% within a tight 43.8%–44.5% band. TTM free cash flow of $2.921 billion yields 4.1% on the $71.99 billion market cap, funding a 2.48% dividend (58.2% payout) and $750 million of quarterly buybacks. However, the 23.41x PE and 17.2x EV/EBITDA sit above mid-teens cyclical machinery benchmarks, and the stock has lagged SPY by 5.27 points over one year, so the quality premium is not being rewarded by the market.
Three risks could invalidate the thesis: margin compression from tariffs and input costs, a cyclical downturn in automotive and construction (roughly 31% of revenue), and multiple compression toward the 16.7x historical trough. The rating would upgrade to Buy if the shares pull back toward the $249 analyst low target (implying ~20x forward earnings) or if revenue growth accelerates above 8% with margin expansion; it would downgrade to Sell if gross margin breaks below 43.8% or if forward EPS guidance falls below the $13.76 low estimate. Verdict: fairly valued to modestly overvalued relative to history and peers — a quality holding, not a compelling entry point.
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ITW 12-Month Price Forecast
ITW presents a balanced risk/reward: the quality franchise — 26.67% operating margin, 16.9% ROA, $2.921 billion TTM FCF — is genuine, but the 23.41x trailing PE already prices in continued execution, and the 3.25 hold consensus with 8.2% average upside offers limited compensation for cyclical exposure in automotive and construction. The base case (50% probability) targets $285–$295, essentially the analyst average, while the bear case (25%) reaches the $249 low target and the bull case (25%) requires multiple expansion to $326. I would upgrade to bullish if revenue growth accelerates above 8% with operating margin above 27.4%, or if the stock pulls back toward $249 (roughly 20x forward earnings); I would downgrade to bearish if gross margin breaks below 43.8% or forward EPS guidance falls below $13.76.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Illinois Tool Works's 12-month outlook, with a consensus price target around $294.57 and implied upside of +8.2% versus the current price.
Average Target
$294.57
0 analysts
Implied Upside
+8.2%
vs. current price
Analyst Count
—
covering this stock
Price Range
$249 - $326
Analyst target range
Coverage is moderate with 14 analysts, and the consensus is decidedly lukewarm: the recommendation is "hold" with a recommendation mean of 3.25 (where 1 is strong buy and 5 is strong sell), and the average target price of $294.57 implies roughly 8.2% upside from the current $272.28. That is a modest expected return for an industrial with a 0.975 beta, and the hold consensus reflects the tension between ITW's quality franchise and its full valuation — analysts see the earnings power but not a compelling entry point at current levels.
The target range of $249.00 to $326.00 is wide, spanning about 31% from low to high, which signals genuine disagreement about the trajectory. The high target of $326 assumes multiple expansion toward the top of the historical PE band alongside accelerating margin gains and a cyclical recovery in automotive and construction end markets, while the low target of $249 prices in margin compression, tariff-driven cost pressure, and a flat-to-down industrial backdrop. Institutional ratings show a polarized but stable pattern — JP Morgan reiterating Overweight, Evercore ISI and Barclays maintaining Underperform/Underweight, and Baird, Truist, Citigroup, and Wells Fargo sitting Neutral or Underweight — with no meaningful recent upgrades, suggesting the Street is waiting for evidence of sustained growth before turning more constructive. The consensus EPS estimate of $14.02 (range $13.76–$14.21) and revenue estimate of $18.52 billion (range $18.25–$18.71 billion) are tightly clustered, indicating high confidence in near-term numbers but low confidence in the multiple those numbers deserve.
Bulls vs Bears: ITW Investment Factors
The bear case currently holds slightly stronger evidence: ITW trades at 23.4x trailing earnings — upper-middle of its historical range — while lagging the S&P 500 by 5.27 points over one year and 7.47 points over six months, and the Street's 3.25 hold rating with only 8.2% average upside offers no catalyst. The bull case rests on genuinely impressive execution — 26.67% operating margin, 6.12% revenue growth, $2.921 billion TTM FCF — but these strengths are already reflected in a premium multiple. The single most important tension is whether mid-single-digit revenue growth can re-accelerate enough to justify multiple expansion toward the $326 high target, or whether deceleration toward the low end of consensus compresses the PE toward its 16.7x historical trough. Resolution likely hinges on the automotive and construction end markets, which together account for roughly 31% of revenue.
Bullish
- Margin expansion remains intact: Q2 2026 gross margin of 44.13% and operating margin of 26.67% sit at the high end of the 43.8%–44.5% gross and 25.4%–27.4% operating bands of the last four quarters, demonstrating that 80/20 pricing and cost discipline are offsetting wage and tariff pressure. Net income rose to $815 million from $755 million a year earlier, a 7.9% increase on 6.12% revenue growth, confirming positive operating leverage.
- Revenue re-accelerating sequentially: Q2 2026 revenue of $4.301 billion grew 6.12% year-over-year and 7.1% sequentially from Q1's $4.016 billion, an acceleration from the mid-single-digit pace of 2025. The balanced seven-segment mix — led by Automotive OEM at $857 million and Test & Measurement at $769 million — means no single end market can derail the trajectory.
- Analyst target implies 8.2% upside: The 14-analyst average target of $294.57 implies roughly 8.2% upside from $272.28, with a high target of $326.00 (19.7% upside) reflecting multiple expansion toward the top of the historical PE band. Consensus EPS of $14.02 is tightly clustered ($13.76–$14.21), signaling high confidence in near-term earnings delivery.
- Strong cash generation and shareholder returns: TTM free cash flow of $2.921 billion equates to a 4.1% FCF yield on the $71.99 billion market cap, comfortably funding the 2.48% dividend yield (58.2% payout) and $750 million of Q2 2026 buybacks. The February 2026 dividend declaration reinforces the quality-compounder narrative.
Bearish
- Full valuation versus history and peers: At 23.41x trailing and 22.06x forward earnings, ITW sits in the upper-middle of its 16.7x–27.4x historical PE band and above the 22.6x–24.5x readings of most of 2025. The 17.2x EV/EBITDA and 4.49x PS are premiums to mid-teens cyclical machinery multiples, leaving little room for disappointment.
- Persistent relative underperformance: ITW has lagged SPY by 5.27 percentage points over one year, 7.47 points over six months, and 4.06 points over three months, despite a positive 10.26% absolute return. The stock is up only 0.0073% over six months versus SPY's 7.48%, evidence that leadership has rotated away from quality industrials.
- Leveraged balance sheet limits cushion: Debt-to-equity of 2.78x and a current ratio of 1.21 reflect a buyback-heavy capital structure with limited flexibility if industrial demand rolls over. Quarterly free cash flow fell to $631 million in Q2 2026 from $904 million in Q3 2025, partly on a $227 million working-capital drag.
- Lukewarm analyst consensus: The recommendation mean of 3.25 (hold) with 14 analysts and a polarized split — JP Morgan Overweight versus Evercore ISI and Barclays Underperform/Underweight — signals no near-term catalyst for re-rating. The $249 low target implies 8.6% downside from current levels.
ITW Technical Analysis
ITW is in a choppy, range-bound consolidation rather than a clean trend: the stock is up 10.26% over the trailing year and 9.13% year-to-date, but that masks a violent mid-year round trip from roughly $245 in early June to a peak near $297 in early August and back to $272.28 today. At the current price the shares sit at approximately 52% of the 52-week range (low $238.82, high $303.16), a neutral mid-range position that offers neither the momentum confirmation of a fresh high nor the deep-value setup of a washed-out low. The 52-week high of $303.16 remains about 11.4% above spot, while the low is roughly 12.3% below, framing a stock that has spent the year digesting gains rather than extending them.
Short-term momentum has turned modestly constructive but is decelerating relative to the summer surge: the stock is up 1.85% over the past month versus a 1.22% gain for SPY, a relative-strength reading of +0.63, yet it is down 1.37% over three months against SPY's +2.69%, producing a -4.06 relative-strength gap. The one-year relative strength of -5.27 and six-month relative strength of -7.47 confirm that ITW has lagged the market through the middle of the year despite its positive absolute return, a classic divergence where the longer-term uptrend is intact but leadership has rotated elsewhere. The October rebound from the late-September dip to $257.28 — a roughly 5.8% bounce into $272.28 — suggests buyers are defending the low-$260s, though the absence of volume confirmation (daily volume of about 1.44 million shares) and a short ratio of 6.69 days leave the move vulnerable to reversal.
Key technical levels are well defined: support clusters at the 52-week low of $238.82, with an intermediate shelf near the September trough of $257.28, while resistance sits at the August high of $303.16 and, more immediately, the $295–$297 zone that capped the summer rally. A decisive break above $297–$303 would signal a resumption of the primary uptrend and likely invite momentum buyers, whereas a loss of $257 would put the $238.82 low in play and validate the relative-strength deterioration. With a beta of 0.975 the stock is marginally less volatile than the market, and a maximum drawdown of -17.95% over the period underscores that this is a moderate-risk industrial holding rather than a high-octane cyclical — position sizing should reflect a name that trades roughly in line with SPY but with meaningfully lower upside beta in risk-on rallies.
Beta
0.97
0.97x market volatility
Max Drawdown
-17.9%
Largest decline past year
52-Week Range
$239-$303
Price range past year
Annual Return
+10.3%
Cumulative gain past year
| Period | ITW Return | S&P 500 |
|---|---|---|
| 1m | +1.9% | +0.2% |
| 3m | -1.4% | +2.9% |
| 6m | +0.0% | +8.4% |
| 1y | +10.3% | +14.9% |
| ytd | +9.1% | +11.9% |
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ITW Fundamental Analysis
Revenue is growing at a modest but improving clip: Q2 2026 revenue of $4.301 billion rose 6.12% year-over-year from $4.053 billion, building on Q1 2026's $4.016 billion (up from $3.839 billion a year earlier) and Q4 2025's $4.093 billion. The sequential progression from $4.016 billion to $4.301 billion represents roughly 7.1% quarter-over-quarter growth, and the year-over-year acceleration from the mid-single-digit pace of 2025 suggests the top line is re-accelerating rather than stalling. Segment data show a balanced portfolio — Test & Measurement and Electronics at $769 million, Automotive OEM at $857 million, Food Equipment at $692 million, Welding at $549 million, Construction Products at $494 million, Polymers & Fluids at $476 million, and Specialty Products at $468 million — with no single end market able to dominate the growth trajectory, which dampens cyclicality but also limits the upside from any one recovery.
Profitability is robust and stable at levels that are high for diversified industrials: Q2 2026 net income of $815 million on $4.301 billion of revenue produced a 18.95% net margin, while gross margin of 44.13% and operating margin of 26.67% reflect the 80/20 discipline. Gross margin has hovered in a tight 43.8%–44.5% band across the last four quarters (Q1 2026: 43.82%, Q4 2025: 44.20%, Q3 2025: 44.49%), and operating margin has ranged from 25.4% to 27.4%, indicating pricing power and cost control are offsetting wage and tariff pressure. Net income of $815 million in Q2 2026 compares with $755 million in Q2 2025 and $768 million in Q1 2026, a steady upward grind that supports the thesis that ITW's margin story is intact even if volume growth is only mid-single-digit.
Balance sheet and cash generation are the weaker links in an otherwise high-quality profile: debt-to-equity of 2.78x (with a total-debt-to-capitalization ratio near 0.77) and a current ratio of 1.21 reflect a leveraged, shareholder-return-focused capital structure, while free cash flow of $2.921 billion TTM against a $71.99 billion market cap implies an FCF yield of roughly 4.1%. Quarterly free cash flow has been uneven — $631 million in Q2 2026, $528 million in Q1 2026, $858 million in Q4 2025, and $904 million in Q3 2025 — with the sequential decline partly attributable to working-capital swings (a $227 million drag in Q2 2026) and heavy buybacks ($750 million in Q2 2026 alone). ROE of 95.1% is flattered by the thin equity base created by years of repurchases, but ROA of 16.9% confirms genuine asset-level profitability; the company funds growth and dividends internally, though the 2.78x leverage leaves less cushion if industrial demand rolls over.
Quarterly Revenue
$4.3B
2026-06
Revenue YoY Growth
+6.1%
YoY Comparison
Gross Margin
44.1%
Latest Quarter
Free Cash Flow
$2.9B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is ITW Overvalued?
Because ITW is solidly profitable (Q2 2026 net income of $815 million), the PE ratio is the appropriate primary metric. The stock trades at 23.41x trailing earnings and 22.06x forward earnings, a modest 5.8% compression that implies the market expects only modest earnings growth — consistent with consensus EPS of $14.02 against a current price of $272.28. The PEG ratio of -2.24 is not meaningful given the sign of the growth input, but the trailing PE of 23.4x against a 19.1% net margin and 26.3% operating margin frames a quality-at-a-fair-price setup rather than a deep-value or momentum-multiple situation.
Relative to the broader industrial machinery sector, ITW's 23.4x trailing PE and 17.2x EV/EBITDA sit at a premium to the typical mid-teens multiple commanded by cyclical machinery names, while the 4.49x PS and 5.23x EV/Sales reflect the high-margin, asset-light-ish mix. The 22.3x price-to-book is extreme on its face but is an artifact of the repurchase-shrunken equity base rather than a genuine 22x book premium; on cash flow, the 23.0x PCF and 17.2x EV/EBITDA are the more honest comparators. The premium is defensible on margins and returns — a 26.3% operating margin and 16.9% ROA are top-quartile for diversified industrials — but leaves little room for earnings disappointment.
Historically, ITW's own PE band has ranged from roughly 16.7x (Q3 2024) to 27.4x (Q4 2023), with the current 23.4x sitting in the upper-middle of that range and above the 22.6x–24.5x readings that prevailed through most of 2025. The stock is therefore not cheap versus its own history — it is priced for continued margin execution and mid-single-digit growth, and the 2.48% dividend yield with a 58.2% payout ratio offers income support but not a valuation floor. Investors are paying a full but not stretched multiple for a high-quality compounder, and the risk/reward skews negative if growth decelerates toward the low end of consensus.
PE
23.4x
Latest Quarter
vs. Historical
Mid-Range
5-Year PE Range 19x~27x
vs. Industry Avg
N/A
Industry PE ~N/A*
EV/EBITDA
17.2x
Enterprise Value Multiple
Investment Risk Disclosure
Financial and operational risks center on a leveraged, shareholder-return-focused balance sheet and uneven cash conversion. Debt-to-equity of 2.78x with total-debt-to-capitalization near 0.77 and a current ratio of only 1.21 leaves limited cushion if industrial demand rolls over, while quarterly free cash flow has been volatile — $631 million in Q2 2026 versus $904 million in Q3 2025 — partly due to a $227 million working-capital drag and $750 million of buybacks in a single quarter. Revenue is diversified across seven segments, but Automotive OEM ($857 million) and Construction Products ($494 million) together represent roughly 31% of Q2 2026 revenue, exposing earnings to cyclical downturns in vehicle builds and construction. The 95.1% ROE is flattered by a repurchase-shrunken equity base, meaning reported returns overstate the balance-sheet resilience if earnings decline.
Market and competitive risks are dominated by valuation compression. At 23.41x trailing and 22.06x forward earnings, ITW trades at a premium to the mid-teens multiples typical of cyclical machinery names and in the upper-middle of its own 16.7x–27.4x historical band, so any earnings miss could trigger multiple contraction toward the 2024 trough. The stock's beta of 0.975 offers little downside protection in a market selloff, and its relative-strength deterioration — -5.27 over one year and -7.47 over six months versus SPY — suggests sector rotation away from quality industrials is already underway. Tariff and input-cost pressure on the 44.1% gross margin, plus a polarized analyst community (JP Morgan Overweight versus Evercore ISI and Barclays Underperform/Underweight), means sentiment could shift quickly on a single data point.
The worst-case scenario is a synchronized industrial slowdown: automotive production cuts and construction weakness hit the two largest cyclical segments, tariff costs outpace pricing, gross margin slips below the 43.8% four-quarter floor, and the multiple compresses toward the 16.7x historical trough. In that chain, the stock could retest its 52-week low of $238.82 — a 12.3% decline from $272.28 — and the $249 analyst low target implies 8.6% downside even in a milder disappointment. A deeper drawdown toward the -17.95% maximum drawdown observed over the period would put the shares near $223, roughly 18% below current levels, underscoring that the downside is meaningful for a name with only 8.2% consensus upside.
FAQ
Ranked by severity: first, valuation compression — at 23.41x trailing PE, a move toward the 16.7x historical trough would imply roughly 29% multiple-driven downside, and the stock has already lagged SPY by 5.27 points over one year. Second, cyclical end-market exposure — Automotive OEM ($857 million) and Construction Products ($494 million) represent roughly 31% of Q2 2026 revenue and face soft vehicle production and construction backdrops. Third, financial leverage — debt-to-equity of 2.78x and a current ratio of 1.21 leave limited cushion, with quarterly free cash flow already falling to $631 million in Q2 2026 from $904 million in Q3 2025. Fourth, margin pressure from tariffs and input costs, which could break the 43.8% gross-margin floor that has held for four quarters.
The 12-month forecast has three scenarios: a base case (50% probability) of $285–$295, essentially the $294.57 analyst average, assuming 5–6% revenue growth and stable 44% gross margins at a 22x forward PE; a bull case (25%) of $303.16–$326.00, requiring automotive and construction recovery plus operating margin above 27.4% and multiple expansion toward the historical top; and a bear case (25%) of $238.82–$249.00, driven by a synchronized industrial slowdown, gross margin below 43.8%, and PE compression toward 16.7x. The base case is most likely because consensus EPS of $14.02 is tightly clustered ($13.76–$14.21) and the analyst target range of $249–$326 brackets the current price with modest skew. The key assumption behind the base case is that 80/20 pricing continues to offset tariff and wage costs.
ITW appears fairly valued to modestly overvalued. At 23.41x trailing and 22.06x forward earnings, the stock sits in the upper-middle of its 16.7x–27.4x historical PE band and above the 22.6x–24.5x readings that prevailed through most of 2025. Relative to peers, the 17.2x EV/EBITDA and 4.49x PS are premiums to the mid-teens multiples typical of cyclical machinery names, justified by a 26.3% operating margin and 16.9% ROA but leaving little room for error. The 22.3x price-to-book is an artifact of buyback-shrunken equity rather than a genuine book premium, so cash-flow metrics are the more honest comparators. The market is paying for continued margin execution and mid-single-digit growth; a deceleration toward the low end of the $13.76–$14.21 EPS range would likely compress the multiple toward the high-teens.
From a risk/reward perspective, ITW is a reasonable but not compelling buy at $272.28: the 14-analyst average target of $294.57 implies only 8.2% upside, while the $249 low target implies 8.6% downside, a roughly symmetric payoff. The quality underpinnings are strong — 26.67% operating margin, 16.9% ROA, $2.921 billion TTM free cash flow and a 2.48% dividend — but the 23.41x trailing PE already capitalizes those strengths. The biggest downside risk is a cyclical downturn in automotive and construction (roughly 31% of revenue) that compresses margins and the multiple toward the 16.7x historical trough. It is a good buy for income-oriented, lower-volatility investors (beta 0.975) with a multi-year horizon, particularly on a pullback toward the $249–$257 support zone; it is less attractive for investors seeking near-term upside or momentum.
ITW is better suited to long-term holding than short-term trading. Its growth stage is mature — 6.12% revenue growth and a 43,000-employee diversified industrial base — with a beta of 0.975 and a maximum drawdown of -17.95%, offering limited volatility for traders but also limited momentum: the stock is up only 0.0073% over six months and has lagged SPY by 7.47 points over that period. The 2.48% dividend yield with a 58.2% payout ratio and consistent quarterly declarations (most recently February 2026) rewards patient income investors, while earnings visibility is high given the tight $13.76–$14.21 EPS consensus range. A suggested minimum holding period is 2–3 years to capture a full industrial cycle and the compounding of dividend growth; short-term traders should wait for a decisive break above the $295–$303 resistance zone or a pullback to the $249–$257 support shelf before entering.