ILLINOIS TOOL WORKS INC (ITW) Stock Analysis
ILLINOIS TOOL WORKS INC (ITW) Stock Analysis
Overall Grade: F (Concerning)
View interactive company profile →
ILLINOIS TOOL WORKS INC faces challenges in financial performance that warrant careful analysis.
Key Metrics:
| Metric | Value | Context |
|---|---|---|
| ROIC | 33.3% | Above industry average |
| FCF Margin | 16.9% | Strong cash generation |
Investment Thesis: Strong return on invested capital of 33.3% suggests durable competitive advantages and efficient capital allocation.
What is ILLINOIS TOOL WORKS INC's Profitability and ROIC?
ILLINOIS TOOL WORKS INC generates strong returns on invested capital at 33.3%, indicating efficient capital allocation and competitive advantages. Gross margin of 44.1% with operating margin at 26.3% reflects the company's strong market position.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 33.3% | Excellent | Strong capital efficiency |
| Gross Margin | 44.1% | Good | Strong pricing power |
| Operating Margin | 26.3% | Excellent | Efficient operations |
How Strong is ILLINOIS TOOL WORKS INC's Cash Flow Quality?
ILLINOIS TOOL WORKS INC generated $2.7B in free cash flow over the trailing twelve months, representing a 16.9% margin. Cash earnings quality is strong, with operating cash flow exceeding net income by 1.0x.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Free Cash Flow Margin | 16.9% | Good | Excellent cash conversion |
| Free Cash Flow (TTM) | $2.7B | Good | Positive cash generation |
| OCF/Net Income | 1.0x | Excellent | High earnings quality |
| FCF Consistency (8Q) | N/A | Warning | Variable cash flow |
What is ILLINOIS TOOL WORKS INC's Financial Health?
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Net Cash Position | $-8.1B | Warning | Net debt position |
Is ILLINOIS TOOL WORKS INC Stock Overvalued or Undervalued?
ILLINOIS TOOL WORKS INC trades at a P/E of 23.4x, representing a premium to the sector median of N/A. Free cash flow yield of 3.8% reflects market expectations for growth.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| P/E Ratio | 23.4x | Adequate | Premium valuation |
| EV/Sales | 5.0x | Good | Growth premium priced in |
| FCF Yield | 3.8% | Adequate | Lower cash yield |
| Dividend Yield | 2.5% | Adequate | Growth focus over income |
Sector Rankings
| Metric | Value | Percentile | vs Median |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 33.3% | Top 5% | 4.2x above |
| Free Cash Flow Margin | 16.9% | Top 25% | 3.1x above |
| Gross Margin | 44.1% | Top 50% | 1.3x above |
| Operating Margin | 26.3% | Top 5% | 3.2x above |
| P/E Ratio | 23.4x | N/A | - |
Rating Thresholds
Return on Invested Capital (ROIC)
Measures how efficiently a company uses its debt and equity capital to generate profits. ROIC above 15% typically indicates a competitive moat.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Exceptional capital efficiency, strong competitive moat |
| Good | 12% - 20% | Above-average returns, sustainable competitive position |
| Adequate | 8% - 12% | Around cost of capital, moderate competitive position |
| Warning | 4% - 8% | Below cost of capital, value may be eroding |
| Red flag | < 4% | Significant capital destruction, fundamental issues |
Current: 33.3% (Excellent - Top 5% of sector (median: 8.0%))
Free Cash Flow Margin
The percentage of revenue converted to free cash flow. Higher margins indicate stronger cash generation and business quality.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Strong cash generation, high-quality business |
| Good | 10% - 20% | Healthy cash conversion |
| Adequate | 5% - 10% | Moderate cash generation |
| Warning | 0% - 5% | Thin cash margins, capital intensive |
| Red flag | < 0% | Cash burn, potential liquidity concerns |
Current: 16.9% (Good - Top 25% of sector (median: 5.4%))
Gross Margin
Revenue minus cost of goods sold as a percentage. Higher gross margins indicate pricing power and competitive advantage.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 50% | Strong pricing power and competitive moat |
| Good | 30% - 50% | Healthy margins, differentiated product |
| Adequate | 20% - 30% | Moderate margins, competitive industry |
| Warning | 10% - 20% | Thin margins, commodity-like business |
| Red flag | < 10% | Very thin margins, structural challenges |
Current: 44.1% (Good - Top 50% of sector (median: 33.4%))
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. Lower P/E may indicate undervaluation, while higher P/E suggests growth expectations.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 15x | Attractively valued, potential opportunity |
| Good | 15x - 25x | Fair value for quality company |
| Adequate | 25x - 35x | Growth premium, justify with earnings growth |
| Warning | 35x - 50x | High expectations priced in |
| Red flag | > 50x or negative | Speculative valuation or losses |
Current: 23.4x (Adequate)
Free Cash Flow Yield
Free cash flow per share divided by stock price. Higher FCF yield indicates better cash return relative to valuation.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 8% | High cash return, potential value opportunity |
| Good | 5% - 8% | Solid cash yield |
| Adequate | 3% - 5% | Moderate cash return |
| Warning | 1% - 3% | Low cash yield, growth expectations |
| Red flag | < 1% | Minimal cash return to shareholders |
Current: 3.8% (Adequate)
Frequently Asked Questions
Q: What is ILLINOIS TOOL WORKS INC's Return on Invested Capital (ROIC)?
ILLINOIS TOOL WORKS INC (ITW) has a trailing twelve-month Return on Invested Capital (ROIC) of 33.3%. This compares above the sector median of 8.0%. An ROIC above 20% indicates exceptional capital efficiency and strong competitive advantages.
Q: What is ILLINOIS TOOL WORKS INC's Free Cash Flow Margin?
ILLINOIS TOOL WORKS INC (ITW) has a free cash flow margin of 16.9%, generating $2.7 billion in free cash flow over the trailing twelve months. A FCF margin between 10-20% represents healthy cash generation for most industries.
Q: Is ILLINOIS TOOL WORKS INC stock overvalued or undervalued?
ILLINOIS TOOL WORKS INC (ITW) trades at a P/E ratio of 23.4x, which is above the sector median of N/A. The EV/Sales multiple is 5.0x. Free cash flow yield is 3.8%, which is in line with market averages.
Q: Does ILLINOIS TOOL WORKS INC pay a dividend?
ILLINOIS TOOL WORKS INC (ITW) currently pays a dividend yield of 2.5%. Including share buybacks, the total shareholder yield is 4.6%. This yield is moderate, suggesting a balance between income and growth reinvestment.
Q: What is ILLINOIS TOOL WORKS INC's revenue and earnings growth?
ILLINOIS TOOL WORKS INC (ITW) grew revenue by 0.9% year-over-year. Earnings per share decreased by 10.5% compared to the prior year. Modest growth indicates a mature business with stable demand.
Q: Is ILLINOIS TOOL WORKS INC buying back stock?
ILLINOIS TOOL WORKS INC (ITW) repurchased $1.5 billion of stock over the trailing twelve months. This represents a buyback yield of 2.1%.
Q: How does ILLINOIS TOOL WORKS INC compare to competitors in Industrials?
Compared to other companies in Industrials, ILLINOIS TOOL WORKS INC (ITW) shows: ROIC of 33.3% is above the sector median of 8.0% (Top 0%). FCF margin of 16.9% exceeds the sector median of 5.4% (Top 11% of sector). Gross margin at 44.1% is 10.7 percentage points higher than sector peers. These rankings are based on MetricDuck's analysis of all Industrials companies with available SEC filings.
Q: What warning signs should I watch for with ILLINOIS TOOL WORKS INC?
Investors in ILLINOIS TOOL WORKS INC (ITW) should monitor these potential warning signs: 1) ROIC has been declining, potentially signaling deteriorating competitive position. Regular monitoring of SEC filings and quarterly trends is recommended.
Data Source: Data sourced from 10-Q filed 2025-10-24. TTM metrics as of Q4 2025.
Methodology: Financial metrics calculated from SEC 10-K and 10-Q filings using standardized formulas. Sector comparisons use peer group based on SIC code.
This analysis is for informational purposes only and does not constitute investment advice.