Illinois Tool Works (ITW)

Key Statistics

EV/EBIT = 20.95x

ROE = 84.12%

Debt/Equity = 253%

FCF Yield = 2.6%

Dividend Yield = 2.42%

Market Cap = $66.6 billion

The Company

Illinois Tool Works (ITW) is an industrial equipment manufacturer.

ITW originated in Chicago in 1912. Its focus was on washers used in early automobile products. As the automobile industry exploded in the 1920s, ITW went along for the ride.

Today, the company is massive & highly diversified. ITW owns many businesses that manufacture products for mostly large industrial customers.

What all of these products have in common is that they're all known for their reliability & durability. Their products often service big, cyclical businesses (which, by themselves, are not great businesses) with critical parts & tools that are needed to keep those businesses humming. As they say, "during a gold rush, sell shovels." That is precisely the kind of business that is ITW's specialty. They're not building homes during a building boom: they're selling everyone their nail guns. They're not making cars during an auto boom: they're selling specialty fasteners for the automotive manufacturing process.

While they have exposure to many cyclical businesses, their customers operate across many different industries. In other words, they're not simply selling to one industry like automobile manufacturers. They're also selling to industrial kitchens, for instance. ITW will suffer during a recession, but there are enough products and end-customers to keep the business producing cash flow. For example, ITW kept generating free cash flow throughout the financial crisis. Net income declined from $2.5 billion in 2008 to $1.5 billion in 2009, eventually recovering by 2012.