ILLINOIS TOOL WORKS INC (ITW): what the price requires

At today's price, ILLINOIS TOOL WORKS INC (ITW) is priced for +13.4% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-14 · Exported: 2026-07-17 · Source: https://boothcheck.com/report/ITW

Headline

FieldValue
TickerITW
CompanyILLINOIS TOOL WORKS INC
Current price$271.41/sh
CompositionAutomotive OEM 20% / Food Equipment 17% / Test & Measurement and Electronics 18% / Welding 12% / Polymers & Fluids 11% / Construction Products 11% / Specialty Products 11% / Intersegment revenue 0%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed21.9%
Operating margin today26.0%
Margin compression implied-4.1pp
Implied growth13.4%
Multiple paid21x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 8.6% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.2pp.

How unusual the bet is: within-range

ReferenceValue
vs own history+1.18σ
cohort percentile (of 225 peers)48
sustained it ~5 years at this level48%
implied end-window share0%

Valuation X-Ray

Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset1.84x4expensive
Earnings3.69x5expensive
Relative1.78x3expensive
Growth1.44x3expensive

Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.3%); the inversion above states its own rate.

Per-Model Detail (n=15)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$140.891.93xyesFCF base $2.7B, growth 3% (input: historical growth), terminal g 2.9%, WACC 8.3%, 5yr projection
DCF Exit MultipleGrowth$227.951.19xyesExit EV/EBITDA: 17.9x / 19.9x / 21.9x (bear / base = today's held flat / bull), 5yr
Relative ValuationRelative$194.481.40xyesP/E 18x (static sector reference · 2026-04), scenarios: 15.1x / 18.0x / 20.9x (bear / base = reference held flat / bull), EV/EBITDA 14.36x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$117.202.32xyesBV/sh $11.17, ROE (TTM) 97.1%, ke 9.3%
Two-Stage Excess ReturnAsset$777.010.35xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$188.191.44xyesRev $16.2B, growth 3% (input: historical growth; tapered), Terminal P/S: 4.1x / 4.8x / 5.6x (bear / base = today's held flat / bull, cap 8x)
Growth-Adjusted P/ERelative——no—
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$98.672.75xyesNormalized EBIT (5y avg op income, one-time charges added back) $3.98B × (1−21%) / WACC 8.3% → EPV (no growth)
Residual IncomeAsset$197.651.37xyesBV $11.17 + 5yr PV of (ROE (TTM) 97.1% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham NumberAsset$52.025.22xyes√(22.5 × EPS $10.77 × BVPS $11.17) — Graham's conservative floor
EV/EBITDA RelativeRelative$152.441.78xyesEBITDA $4.37B × sector EV/EBITDA 12.0x
FCF YieldEarnings$73.643.69xyesFCF $2739.0M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$70.993.82xyesSBC-adj FCF $2.67B (FCF $2.74B − SBC $0.07B) capitalized at Kₑ
Ben Graham FormulaEarnings$43.856.19xyesEPS $10.77 × (8.5 + 2×-1.8%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$9.3329.09xyesBV $11.17 × (ROIC 7.0% / WACC 8.3%) (excluded from median)
P/Sales SectorRelative$140.271.93xyesRevenue $16.22B × sector P/S 2.5x
PEG Fair ValueRelative——no—
Earnings YieldEarnings$116.432.33xyesEPS $10.77 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$9.4b
Net debt / NOPAT (after-tax)2.87x
Net debt / operating income (pre-tax)2.26x
Interest coverage14.3x
Share count CAGR (buyback)-2.0%
Burning cashno

Bullet Takeaways

Bull Case

What the standard valuation models miss about ITW is the durability of its margins, which is the whole point of the company. The static methods see a business with a 19% trailing operating margin and roughly flat revenue and conclude the price is high. What they cannot price is why that margin is so high and so stable: the 80/20 Front-to-Back model, which the 10-K describes as an innovation approach where "working from the customer back, ITW businesses position themselves as the go-to problem solver for their" most important customers. By concentrating on the 20% of customers and products that drive 80% of the value, ITW earns segment margins most diversified industrials cannot approach, and the first quarter took company-wide operating margin to 25.4%, up 60 basis points year over year.

The gap between what the numbers show and what the business does is widest in the quality of the earnings. ITW generates these margins across seven unrelated segments, from automotive components to food equipment to welding to test and measurement, which means no single end market can break the company, and the consistency is structural rather than cyclical luck. The filing frames "above-market organic growth" as the core growth engine for delivering world-class financial performance, and the model is designed to keep widening margins even when revenue growth is modest. That is exactly what happened in the first quarter: organic growth was a slim 0.4%, yet EPS rose 12%, because margin expansion and disciplined capital allocation did the heavy lifting.

The capital story compounds the operating story. ITW shrinks its share count about 2% a year through buybacks, pays a well-covered and steadily growing dividend, and converts a high share of earnings into free cash flow. Management raised full-year GAAP EPS guidance to a range of $11.10 to $11.50 while expecting all seven segments to deliver positive organic growth and margin expansion in 2026. A business that can lift EPS double digits on near-zero organic growth, across seven diversified segments, with rising margins and a shrinking share count, is the kind of compounder the static valuation frames systematically undervalue, because they price the present rather than the proven ability to widen returns year after year.

Bear Case

The honest way to weigh ITW is to take the valuation methods that disagree with the price seriously, because here they disagree nearly unanimously, and the conservative ones are usually the more reliable guide. At $264.04 not a single valuation family reaches the price. The zero-growth earnings-power value lands near $99, the perpetual-growth DCF near $142, the peer-multiple methods in the $150s to $190s, and even the forward growth methods fall short. When asset, earnings, relative, and growth frames all say expensive at once, the price is a bet beyond what any standard approach supports, and the burden of proof sits squarely with the believers.

The operating numbers give the cautious models real ammunition. ITW's organic growth was 0.4% in the first quarter, and the full-year organic outlook is just 1% to 3%. Most of the reported revenue growth came from foreign-currency translation, not from selling more product. A company growing organically at a low-single-digit pace, however high its margins, is a slow grower, and paying a premium multiple for a slow grower only works if the multiple holds. The risk is multiple compression: if the market ever decides a 1% to 3% organic grower should trade at an industrial-average multiple rather than a premium one, the de-rating alone would be painful regardless of how well the business executes.

The balance sheet and the margin ceiling round out the caution. ITW carries about $9.4 billion of net debt, net debt near 2.8 times operating income, which is moderate but not trivial against a business whose top line barely grows. More fundamentally, the 80/20 model has already been applied for decades, so the margin expansion that drives EPS growth on flat revenue has a mathematical ceiling, you cannot keep adding 60 basis points a year forever. The model that prices the business as a perpetual margin-expander is extrapolating a finite process. The conservative methods, which value ITW on what it earns today without assuming endless margin gains or a permanently premium multiple, are saying the same thing in different words: this is an excellent company at a demanding price, and excellence is already in the number.

Valuation

ITW is the rare name where every valuation family lands below the price, which is the framework's strongest signal that the market is paying for something the standard methods cannot capture. At $264.04 the zero-growth earnings-power value is near $99, the perpetual-growth DCF near $142, relative valuation near $193, EV/EBITDA near $152, and residual income near $198. The lone exception is the two-stage excess-return method, which reaches far above the price by extrapolating ITW's high return on equity, and that exception is itself the tell: the bull case for ITW lives entirely in the assumption that its superior returns persist for a long time.

The inversion frames the price as a duration-and-margin bet rather than a growth bet. With organic growth running near 1% to 3%, the price is not asking for a revenue surge; it is asking the market to believe ITW sustains its elevated margins and returns on capital for an unusually long runway. The premium is for quality, and quality is not free.

Solvency is not a concern. ITW carries about $9.4 billion of net debt against trailing operating income of roughly $4.3 billion, so net debt is under three times operating income, and interest coverage sits above fourteen times. The business converts earnings to cash efficiently and returns it through a growing dividend and steady buybacks that shrink the share count about 2% a year.

Catalysts

ITW's first quarter of 2026 was a clean demonstration of the model and prompted a guidance raise. Revenue grew 5%, but organic growth was just 0.4%, with foreign currency adding 3.9% and a small acquisition the rest; the real story was margin, which expanded 60 basis points to 25.4% and drove GAAP EPS up 12% to $2.66. Welding and Test & Measurement and Electronics led with organic growth of 6% and 5% respectively. Management raised full-year GAAP EPS guidance by $0.10 to a range of $11.10 to $11.50 while holding the organic growth outlook at 1% to 3% and revenue growth at 2% to 4%.

The forward catalysts are incremental rather than transformative, which suits a company of this profile. The key watch items are whether organic growth accelerates from its low-single-digit pace as management expects all seven segments to deliver positive organic growth, whether margin expansion continues toward the high-twenties, and how the automotive and construction-exposed segments fare against their respective cycles. Capital return is a steady tailwind, with ongoing buybacks and a growing dividend. Because the valuation already prices in continued excellence, the practical catalyst that matters most is any sign of organic-growth reacceleration that would justify the premium multiple, or conversely any stumble that invites the de-rating the conservative methods imply.

Peer Cohorts (Per Segment, With Filing Citations)

Automotive OEM (reported)

Food Equipment (reported)

Test & Measurement and Electronics (reported)

Welding (reported)

Polymers & Fluids (reported)

Construction Products (reported)

Specialty Products (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

ITW Q1 2026 earnings, GuruFocus / Investing.com, April 2026 · ITW Q1 2026 earnings, IndexBox, April 2026 · ITW Q1 2026 earnings, Investing.com, April 2026 · ITW Q1 2026 earnings, IndexBox / GuruFocus, April 2026

View the full interactive ITW report on boothcheck