Illinois Tool Works: Valuation Multiple Should Expand; Raising Dec 26 PT to $350

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Illinois Tool Works: Valuation Multiple Should Expand; Raising Dec 26 PT to $350

6E ($ mn) 4,823 4,880 1.2%

while we expect industrial capex-driven end markets to remain strong based on Adj. EBITDA - 27E ($ mn) 5,218 5,266 0.9%

macro data points and ITW’s segment peer commentary. Incremental margins

should accelerate next year as well, as the price/cost headwind is temporarily Quarterly Forecasts (FYE Dec)

limiting this year’s incremental margin guidance at ~40%, which would have Adj. EPS ($)

been mid-to-high-40% otherwise. Hence, we see a credible path to DD% EPS 2025A 2026E 2027E

Q1 2.45 2.77A

growth next year (on a like-for-like basis excluding 1x gains), which should drive Q2 2.58 2.84A

valuation higher after four years of MTHSD% EPS growth. We are raising our Q3 2.91 2.96

Dec 2026 price target to $350 based on ~27x FY1 P/E, ~2x above the current Q4 2.72 3.13

valuation, which we believe is justified given top-line and bottom-line growth FY 10.67 11.72 13.01

acceleration ahead. We are modeling FY26 and FY27 adjusted EPS at $11.72 Style Exposure

and $13.01, respectively. We rate ITW Overweight. Below are additional

takeaways from the earnings release and conference call.

• 2H outlook implies continued organic strength with broad-based segment

improvement. ITW raised FY26 organic growth guidance to 3-4% from 1-3%,

with the new midpoint of 3.5%, and raised FY26 GAAP EPS guidance by $0.15

to $11.35-11.55 with a midpoint of $11.45, implying 9% YoY growth. ITW

stated the updated guidance implies sustained 4.5% organic growth in 2H26,

supported by strengthening order activity across several end markets, available

production capacity, and a robust new product pipeline. ITW expects all seven

segments to deliver positive organic growth and expand operating margins in