- If you are wondering whether Illinois Tool Works at around US$265 a share offers good value today, you will want to see how its current price stacks up against a few different valuation yardsticks.
- The stock has seen mixed returns recently, with about a 1% decline over the last 7 days and a 10.1% decline over the last 30 days, set against gains of 6.2% year to date and 6.6% over the past year.
- Recent coverage has focused on how industrial names like Illinois Tool Works fit into longer term portfolios as investors reassess interest rate expectations and capital spending trends. In that broader context, the stock has been framed as one of several large capital goods companies investors are revisiting after recent price moves.
- Illinois Tool Works currently holds a valuation score of 3 out of 6. The rest of this article will walk through what that means across different valuation methods and will hint at an even richer way to think about value at the end.
Find out why Illinois Tool Works's 6.6% return over the last year is lagging behind its peers.
Approach 1: Illinois Tool Works Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model estimates what a business might be worth by projecting its future cash flows and then discounting those back to today using a required rate of return. It is essentially asking what those future dollars are worth in present terms.
For Illinois Tool Works, the latest twelve month Free Cash Flow is about US$2.69b. Analysts and extrapolated estimates used in this 2 Stage Free Cash Flow to Equity model project cash flows through to 2035, with one reference point at 2030 showing projected Free Cash Flow of US$4.26b. The ten year path between 2026 and 2035 is built from a mix of analyst inputs for the earlier years and Simply Wall St extrapolations for the later years.
When all those projected cash flows are discounted back, the model arrives at an estimated intrinsic value of roughly US$169.84 per share. Compared with a share price around US$265, the DCF output suggests the stock is about 56.1% above this intrinsic estimate, which indicates that Illinois Tool Works appears expensive on this specific cash flow view.
Result: OVERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Illinois Tool Works may be overvalued by 56.1%. Discover 58 high quality undervalued stocks or create your own screener to find better value opportunities.
Approach 2: Illinois Tool Works Price vs Earnings
For a profitable company like Illinois Tool Works, the P/E ratio is a useful way to think about what you are paying for each dollar of current earnings. Investors usually accept a higher P/E when they expect stronger growth or see lower risk, and look for a lower P/E when growth is modest or risks are higher, so what counts as a "normal" or "fair" P/E varies by company and industry.
Illinois Tool Works currently trades on a P/E of about 24.9x. That is below the Machinery industry average P/E of roughly 27.0x and also below the peer group average of about 34.3x. Simply Wall St takes this a step further with its proprietary “Fair Ratio” metric. For Illinois Tool Works, the Fair Ratio is 32.25x, which reflects factors such as its earnings growth profile, industry, profit margins, market cap and risk characteristics.
The Fair Ratio can be more informative than a simple comparison with peers or the industry because it adjusts for company specific traits rather than assuming all Machinery stocks deserve the same multiple. With Illinois Tool Works trading at 24.9x versus a Fair Ratio of 32.25x, this framework indicates the shares screen as undervalued on an earnings multiple basis.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Illinois Tool Works Narrative
Earlier it was mentioned that there is an even better way to understand valuation, so meet Narratives, a simple tool on Simply Wall St's Community page that lets you set out your story for Illinois Tool Works. You can link that story to your own revenue, earnings and margin assumptions, turn those into a Fair Value, and then compare that Fair Value to the current share price. The numbers update when new news or earnings arrive so you can see, for example, how one investor might build a narrative that supports a Fair Value near the higher analyst target of US$290, while another, more cautious investor might anchor closer to US$215 and use that gap to decide whether the current price looks attractive or stretched.
Do you think there's more to the story for Illinois Tool Works? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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