ITW Illinois Tool Works
Elite compounder priced for perfection — the business is wonderful, the price is not.
The business
ITW is a decentralized conglomerate of ~80 niche industrial businesses (welding, food equipment, auto components, test & measurement, construction products, polymers) that each hold #1 or #2 share in small, engineered-product markets. It makes money by charging premium prices for specialized products, then relentlessly applying its 80/20 operating model to strip out low-value customers, SKUs, and costs. The result is unusually high margins and returns on capital for an industrial.
Quality gate · 89/100
Moat & management
| Moat | wide moat |
| Source | intangible |
| Trajectory | stable |
| Management | excellent |
The moat is the ITW Business Model itself — 80/20 discipline, customer-back innovation, and decentralized accountability — reinforced by decades of switching costs and niche leadership in hundreds of small markets where scale rivals don't bother competing. These are boring, engineered consumables and components, not winner-take-all markets, so returns are protected by specialization rather than any single structural advantage. Decades of 25%+ ROIC with 0.93 stability is the evidence it works.
Dividend King with 60+ years of increases, consistent bolt-on M&A, and buybacks that have shrunk the share count ~2%/year without empire-building. Leverage at 1.7x EBITDA is sensible; the only knock is paying up for own stock at rich valuations.
Owner-earnings inputs
| Owner earnings (TTM) | 2.92B |
| Owner-earnings yield | 3.6% |
| Free-cash-flow yield | 3.6% |
| Growth used (normalized) | 5.0% |
| Market-implied growth (reverse DCF) | 11.8% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 9.2% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 3.07B | 5.0% | 2.81B |
| 2 | 3.22B | 4.9% | 2.70B |
| 3 | 3.37B | 4.7% | 2.59B |
| 4 | 3.52B | 4.6% | 2.48B |
| 5 | 3.68B | 4.4% | 2.37B |
| 6 | 3.84B | 4.3% | 2.26B |
| 7 | 3.99B | 4.1% | 2.16B |
| 8 | 4.15B | 4.0% | 2.06B |
| 9 | 4.31B | 3.9% | 1.96B |
| 10 | 4.47B | 3.7% | 1.86B |
| 11 | 4.63B | 3.6% | 1.76B |
| 12 | 4.79B | 3.4% | 1.67B |
| 13 | 4.95B | 3.3% | 1.58B |
| 14 | 5.11B | 3.1% | 1.49B |
| 15 | 5.26B | 3.0% | 1.41B |
Key risks
- Revenue has been flat for 5 years — the moat converts to margin, not growth, and operating margin at 27% leaves little room for the expansion that drove the last decade
- Cyclical exposure to auto OEM, construction, and general industrial demand
- Valuation risk: price already pays for ~12% growth this business has never sustained organically
Catalysts
- Continued 80/20 and enterprise-initiative margin capture
- Reshoring, infrastructure, and welded/fabricated products demand
- Ongoing ~2%/yr share-count reduction plus disciplined bolt-on acquisitions
Recent news
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- Company News for July 29, 2026
- Illinois Tool Works (ITW) Is Up 8.5% After Raising 2026 Guidance And Boosting Share Buybacks
- Illinois Tool Works (ITW) Stock Trades Up, Here Is Why
- Illinois Tool Works Inc (ITW) Q2 2026 Earnings Call Highlights: Record Operating Income and ...
- Illinois Tool Works Inc. Q2 2026 Earnings Call Summary
⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Price pays for ~12%/yr owner-earnings growth over 15y (reverse DCF); model credits 5%. · Rich vs our conservative value, but a quality business is not a short — stance is WAIT for a better price, not sell.