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ITW - Embedded Expectations Analysis - 2021 11 04

Illinois Tool Works Inc. (ITW:USA) trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 27.8x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may have concerns about supply chain disruptions, margin pressure, and disruptions to their automotive vertical.

Specifically, management may have concerns about supply chain disruptions, demand across Automotive OEMs, and the progress of the recovery of the food industry. In addition, they may lack confidence in their ability to meet their margin guidance due to higher input costs, particularly in construction. They may also lack confidence in their ability to gain market share, help customers improve sales, and retain employees through the pandemic. Also, they may be overstating the potential of the MTS acquisition and their focus on sales and innovation. Moreover, they may have concerns about the impact of semiconductor chip shortages and customer delays on their backlog and sales in the automotive channel. Finally, management may lack confidence in their ability to increase capex and manage their working capital, and they may be concerned about greater human involvement in the manufacturing process.
Illinois Tool Works Inc.

Illinois Tool Works manufactures a range of industrial products and equipment. Automotive OEM segment produces components and fasteners for automotive-related applications. Food Equipment segment is engaged in commercial food equipment. Test and Measurement and Electronics segment produces equipment for testing and measuring of materials and structures. Welding segment produces arc welding equipment, consumables and accessories. Polymers and Fluids segment produces adhesives, sealants, lubrication and cutting fluids for auto aftermarket maintenance. Construction Products segment supplies fastening systems and solutions. Specialty Products segment is focused on patent protection.

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