This Illinois Company Shrugs off Obama Economy

Posted: Jun 21, 2012 12:01 AM

Mutual fund investors generally get antsy when U.S. stock markets experience a pullback, but these pullbacks are embraced by stock portfolio investors who have prepared a shopping list in advance.   In my estimation, the DOW and S&P are done "correcting", have stabilized, and it's time to "buy low" with the cash that's accumulated in your portfolios.  Here's an industrial powerhouse for blue-chip stock investors.

Illinois Tool Works (ITW, $54.48) is a global industrial manufacturer with 800 businesses in 58 countries.  The company is experiencing good growth across most of its eight business segments, despite weak global economies, and could potentially acquire and operate as many as 2000 businesses in time.  Business segments include Construction Products, Decorative Surfaces; Food Equipment; Industrial Packaging; Polymers & Fluids; Power Systems & Electronics; Transportation; and All Other.

The company reported record 2011 revenues of $17.8 billion, and record net income of $2.0 billion.  Wall Street expects continued growth, with projected earnings per share (EPS) increases of 14%, 11% and 11% in fiscal years 2012 through 2014.

Illinois Tool Works recently announced that it's embarking on multi-year initiatives designed to simplify businesses, increase margins, cut costs, and examine whether to sell any of its current operations.

Citi Investment Research & Analysis (CIRA) reports, "The balance sheet is conservatively levered at 15% net debt-to-cap, providing ample optionality to fund acquisitions, growth investments, and share buybacks."  Illinois Tool Works pays a handsome stock dividend of 2.64%.  Forbes expects that dividend to increase in the near-term.  "Despite the acquisition appetite at ITW, the majority of the buys are smaller in size, and as a result, the firm’s balance sheet is in solid shape. More significantly for dividend-seekers, ITW consistently generates huge cash flows. While some of that cash is allotted to acquisition targets, much of it is also spent on dividend payouts," reports Forbes.

The 2012 price earnings ratio (PE) is 12.8, and the ten-year PE range has been between 9 and 27.

CIRA and Standard & Poor's Research (S&P) each have a 12-month target price of $63 on ITW stock.

S&P has a Qualitative Risk Assessment of "Low" on ITW stock.  "Our risk assessment reflects an S&P Quality Ranking of A, indicating a strong long-term record of earnings and dividend growth, and a balance sheet that we see as strong, with total debt of 25% of capital as of March 2012."

ITW stock reached a high of $60 in 2007, fell with the 2008 Financial Meltdown, and has been bouncing up against resistance around $58 for the last year.  Expect the stock to trade in the $53 - $58 range until the general stock markets are ready to go up again.  This large-cap growth stock should appeal to growth & income investors and value investors.