Stock Analysis on Net

Illinois Tool Works Inc. (NYSE:ITW)

This company has been moved to the archive! The financial data has not been updated since February 11, 2022.

Dividend Discount Model (DDM) 

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Illinois Tool Works Inc., dividends per share (DPS) forecast

US$

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Year Value DPSt or Terminal value (TVt) Calculation Present value at 13.17%
0 DPS01 4.72
1 DPS1 6.21 = 4.72 × (1 + 31.62%) 5.49
2 DPS2 7.85 = 6.21 × (1 + 26.41%) 6.13
3 DPS3 9.52 = 7.85 × (1 + 21.20%) 6.57
4 DPS4 11.04 = 9.52 × (1 + 15.98%) 6.73
5 DPS5 12.23 = 11.04 × (1 + 10.77%) 6.59
5 Terminal value (TV5) 564.07 = 12.23 × (1 + 10.77%) ÷ (13.17%10.77%) 303.84
Intrinsic value of Illinois Tool Works Inc. common stock (per share) $335.34
Current share price $217.72

Based on: 10-K (reporting date: 2021-12-31).

1 DPS0 = Sum of the last year dividends per share of Illinois Tool Works Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 3.27%
Expected rate of return on market portfolio2 E(RM) 12.25%
Systematic risk of Illinois Tool Works Inc. common stock βITW 1.10
 
Required rate of return on Illinois Tool Works Inc. common stock3 rITW 13.17%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rITW = RF + βITW [E(RM) – RF]
= 3.27% + 1.10 [12.25%3.27%]
= 13.17%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Illinois Tool Works Inc., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Dividends declared 1,483  1,398  1,335  1,186  982 
Net income 2,694  2,109  2,521  2,563  1,687 
Operating revenue 14,455  12,574  14,109  14,768  14,314 
Total assets 16,077  15,612  15,068  14,870  16,780 
Stockholders’ equity attributable to ITW 3,625  3,181  3,026  3,254  4,585 
Financial Ratios
Retention rate1 0.45 0.34 0.47 0.54 0.42
Profit margin2 18.64% 16.77% 17.87% 17.36% 11.79%
Asset turnover3 0.90 0.81 0.94 0.99 0.85
Financial leverage4 4.44 4.91 4.98 4.57 3.66
Averages
Retention rate 0.44
Profit margin 17.66%
Asset turnover 0.90
Financial leverage 4.51
 
Dividend growth rate (g)5 31.62%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

1 Retention rate = (Net income – Dividends declared) ÷ Net income
= (2,6941,483) ÷ 2,694
= 0.45

2 Profit margin = 100 × Net income ÷ Operating revenue
= 100 × 2,694 ÷ 14,455
= 18.64%

3 Asset turnover = Operating revenue ÷ Total assets
= 14,455 ÷ 16,077
= 0.90

4 Financial leverage = Total assets ÷ Stockholders’ equity attributable to ITW
= 16,077 ÷ 3,625
= 4.44

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.44 × 17.66% × 0.90 × 4.51
= 31.62%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($217.72 × 13.17%$4.72) ÷ ($217.72 + $4.72)
= 10.77%

where:
P0 = current price of share of Illinois Tool Works Inc. common stock
D0 = the last year dividends per share of Illinois Tool Works Inc. common stock
r = required rate of return on Illinois Tool Works Inc. common stock


Dividend growth rate (g) forecast

Illinois Tool Works Inc., H-model

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Year Value gt
1 g1 31.62%
2 g2 26.41%
3 g3 21.20%
4 g4 15.98%
5 and thereafter g5 10.77%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 31.62% + (10.77%31.62%) × (2 – 1) ÷ (5 – 1)
= 26.41%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 31.62% + (10.77%31.62%) × (3 – 1) ÷ (5 – 1)
= 21.20%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 31.62% + (10.77%31.62%) × (4 – 1) ÷ (5 – 1)
= 15.98%