Illinois Tool Works Inc (ITW)

Conclusion

Illinois Tool Works Inc makes industrial equipment and products across seven segments, including food equipment, welding, test and measurement, construction fastening, and polymers and fluids. On 2026-11-09 the share price was 286.73 USD, giving a market capitalisation of 81.5 billion USD.

The verdict is overvalued. The price stands at 25.2 times earnings against a ten-year median of 24.9, and at 28.4 times free cash flow against a median of 26.0. The price to book ratio of 25.9 compares with a median of 20.2. The DCF gives 163.20 USD per share, the fair value band runs from 174.91 to 262.37 USD with a midpoint of 218.64 USD, and the fair value from historical multiples is 274.07 USD. The margin of safety is -23.8% at this price. The reverse DCF implies growth of 12.0% a year, against revenue growth of 5.0% a year over five years and free cash flow per share growth of 2.8% a year over the same period.

The case rests on the strongest numbers: ROIC of 29.8% against a WACC of 9.0%, an Altman Z-score of 8.33, and interest coverage of 14.6x. It would weaken with the weakest ones: the margin of safety of -23.8%, the price to book premium of 28.7% over its ten-year median, and revenue growth of only 0.2% a year over three years.

Financial health

Financial strength is green, held up by all four of its tests: a current ratio of 1.29, net debt to EBITDA of 1.78, interest coverage of 14.6x, and an Altman Z-score of 8.33 in the safe zone. The quick ratio is 0.85 and debt to equity is 2.98, so the balance sheet relies on operating cash flow rather than liquid assets. Illinois Tool Works is a manufacturer, the kind of company the Altman model was built for. Insolvency risk is low, at about 1.5% by the estimate of the Ohlson model over one to two years. The company's debt has fallen by 3.5% a year over five years, which supports the picture of a shrinking leverage burden.

Earnings quality

Earnings quality is yellow, supported by a share count that fell 1.7% a year over five years and by an accrual ratio of -0.4%. Free cash flow conversion is 88.9% on a trailing basis and 84.2% over five years. Stock-based compensation is 0.46% of revenue, and free cash flow after it is 2.79 billion USD. The Piotroski score is 6 of 9. The Beneish M-score is not available. The company beat earnings estimates in all 8 of the last quarters, by 1.7% on average. Estimate revisions are mixed: the current year's estimate rose 0.5% over 90 days, while the next year's fell 0.1%, with three downward revisions in the last 30 days against one upward.

Profitability

Profitability is green. Gross margin is 44.3% against a ten-year median of 41.1%, operating margin is 26.6% against 24.2%, and net margin is 19.4% against 18.1%. Operating margin has moved by 5.2% over the period, a sign of reasonable stability. ROIC is 29.8% against a WACC of 9.0%, and the given ROIC minus WACC value is 20.8%, with a five-year median ROIC of 29.0%. Return on equity of 102.8% is inflated by leverage: the DuPont split shows a net margin of 19.1%, asset turnover of 0.99, and an equity multiplier of 5.01. The return on capital is the real measure of quality here.

Growth

Growth is green. Compound growth in earnings per share is 2.4% over three years, 9.6% over five and 7.4% over ten. Revenue compound growth is 0.2% over three years, 5.0% over five and 1.8% over ten. Free cash flow per share grew 14.1% over three years, 2.8% over five and 5.5% over ten. Revenue grew in 7 of the last 10 comparable years. The next-year earnings estimate implies growth of 7.4%. The recent three-year slowdown in revenue is the main thing to watch against the five-year record.

Valuation

Valuation is red. The price sits at 25.2 times earnings against a ten-year median of 24.9, a premium of 1.3%; at 18.7 times EBITDA against 18.2, a premium of 3.1%; at 28.4 times free cash flow against 26.0, a premium of 9.1%; and at 4.9 times sales against 4.7, a premium of 4.6%. The price to book premium is 28.7%. The DCF gives 163.20 USD per share at a discount rate of 9.59%, and the fair value band runs from 174.91 to 262.37 USD. The margin of safety is -23.8%. The reverse DCF implies 12.0% growth, against 5.0% revenue growth over five years. The dividend yield is 2.3%, and the dividend absorbs 64.6% of free cash flow.

Risks

The main risk is valuation. If the market stops paying a premium over historical multiples, the price could move towards the fair value band, which runs from 174.91 to 262.37 USD. The DCF rests on a terminal value that makes up 52.8% of its result, so its estimate is sensitive to long-term assumptions. Weak recent growth, with revenue CAGR of 0.2% over three years, would pressure the growth the price implies. The Beneish M-score is not available, so manipulation risk cannot be tested. This analysis has no debt maturity schedule and no revenue split by segment, so refinancing risk and segment-level trends are not assessed. The fair value is an estimate built on fixed assumptions, not a price target.