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ITW – Market expectations are for Uniform ROA expansion, but management may be concerned about their segments, margins, and supply chain

January 5, 2021

  • Illinois Tool Works Inc. (ITW:USA) trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 28.4x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about their segments’ growth, operating margins, and auto supply chain
  • Specifically, management may have concerns about their Q4 performance, available M&A opportunities, and the sustainability of elevated Auto OEM demand. In addition, they may be exaggerating their auto supply chain’s flexibility and the business’ durability. Furthermore, management may lack confidence in their ability to sustain the growth of the Construction and Polymer & Fluids segments and mitigate organic revenue declines in the Food Equipment and Welding segments. Moreover, they may be concerned about the sustainability of customers’ recovery and residential construction mix. Finally, management may lack confidence in their ability to further improve margins