Value
4.6/10data confidence 100%| Component | Sub-score |
|---|---|
| P/E | 5.1 |
| P/S | 7.1 |
| EV/EBITDA | 1.3 |
| Fwd P/E | 6.0 |
| PEG | 3.9 |
| Analyst target | 4.0 |
- ▸Forward P/E: 21.7x
- ▸PEG: 2.61
ITW · Why this verdict
Why Illinois Tool Works (ITW) is rated SELL
Updated
Model-generated analysis — not investment advice. Not a registered investment advisor. Past performance does not guarantee future results.
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VerdictSELL
Overall score5.2/10
ConfidenceHIGH
MacroNEUTRAL
TrendMatrix Research · core thesis
Engine thesis — one sentence
Illinois Tool Works operates a high-quality industrial franchise with 19% operating margins and a Piotroski F-Score of 7 out of 9 — among the best in its peer group — and has delivered 4 consecutive EPS beats. The stock is currently trading above its near-term take-profit target, producing an unfavorable asymmetry; the quality thesis is intact, but the current price setup rewards patience rather than new commitment.
Falsifiable statement — pillar-level invalidators below. Engine-derived; not personalized advice.
Thesis pillars
| Pillar | Expectation | Trend |
|---|---|---|
Operating margins of 19% and a Piotroski F-Score of 7 out of 9 place this company among the highest-quality businesses in its peer group, with peer-ranking data confirming best-in-class margins and superior return on equity versus peers — though the high return on equity figure is substantially influenced by a buyback-shrunk equity base. Quality breakdown | Operating margins remain above 17% over the next 4 quarters, confirming that the quality franchise is intact and not eroding. | →Stable |
| CounterFree cash flow is converting at roughly 71 cents per dollar of net income — a gap between accounting earnings and actual cash generation — that represents a modest quality caveat the company must close to fully justify a premium valuation. | ||
The company has beaten consensus EPS in each of the last 4 quarters, including a 3.7% beat in the most recent period, demonstrating a consistent pattern of meeting or exceeding analyst expectations. Earnings | EPS beats continue across the next 2 quarters with average positive surprise remaining above 1%. | →Stable |
| CounterThe 4-quarter average positive surprise of roughly 2.4% is narrow, suggesting that modest conservative guidance rather than fundamental acceleration drives the streak; a single macro-driven quarter could break the pattern. | ||
The stock is currently trading above its near-term take-profit target, making the reward-to-risk ratio unfavorable and leaving no headroom to the resistance level; entering or adding to a position at these levels means committing capital at the upper bound of the near-term expected range. Price targets | The setup becomes actionable if the stock pulls back at least 5% below the take-profit level of approximately $258, restoring positive asymmetry. | →Stable |
| CounterStrong momentum — a golden cross pattern with RSI at 67 and rising on-balance volume — may push the stock further past the current target before reverting, leaving patient investors behind while momentum continues. | ||
Debt-to-equity of 2.8 carries an explicit leverage penalty, and the dividend payout has been flagged at 245% of earnings in the quality data — a level that, if measured against reported net income, raises questions about the sustainability of the dividend without recourse to balance-sheet sources. Bear case | Leverage declines as cash generation improves, and the effective payout ratio trends toward levels fully covered by free cash flow over the next 4 quarters. | →Stable |
| CounterThe company's strong and consistent cash flow generation capacity may mean the dividend is funded from operating cash flows that are understated by the earnings-based payout ratio metric, making the apparent coverage gap less dire than it appears. | ||
Operating margins of 19% and a Piotroski F-Score of 7 out of 9 place this company among the highest-quality businesses in its peer group, with peer-ranking data confirming best-in-class margins and superior return on equity versus peers — though the high return on equity figure is substantially influenced by a buyback-shrunk equity base.
→StableQuality breakdown
- Expectation
- Operating margins remain above 17% over the next 4 quarters, confirming that the quality franchise is intact and not eroding.
CounterFree cash flow is converting at roughly 71 cents per dollar of net income — a gap between accounting earnings and actual cash generation — that represents a modest quality caveat the company must close to fully justify a premium valuation.
The company has beaten consensus EPS in each of the last 4 quarters, including a 3.7% beat in the most recent period, demonstrating a consistent pattern of meeting or exceeding analyst expectations.
→StableEarnings
- Expectation
- EPS beats continue across the next 2 quarters with average positive surprise remaining above 1%.
CounterThe 4-quarter average positive surprise of roughly 2.4% is narrow, suggesting that modest conservative guidance rather than fundamental acceleration drives the streak; a single macro-driven quarter could break the pattern.
The stock is currently trading above its near-term take-profit target, making the reward-to-risk ratio unfavorable and leaving no headroom to the resistance level; entering or adding to a position at these levels means committing capital at the upper bound of the near-term expected range.
→StablePrice targets
- Expectation
- The setup becomes actionable if the stock pulls back at least 5% below the take-profit level of approximately $258, restoring positive asymmetry.
CounterStrong momentum — a golden cross pattern with RSI at 67 and rising on-balance volume — may push the stock further past the current target before reverting, leaving patient investors behind while momentum continues.
Debt-to-equity of 2.8 carries an explicit leverage penalty, and the dividend payout has been flagged at 245% of earnings in the quality data — a level that, if measured against reported net income, raises questions about the sustainability of the dividend without recourse to balance-sheet sources.
→StableBear case
- Expectation
- Leverage declines as cash generation improves, and the effective payout ratio trends toward levels fully covered by free cash flow over the next 4 quarters.
CounterThe company's strong and consistent cash flow generation capacity may mean the dividend is funded from operating cash flows that are understated by the earnings-based payout ratio metric, making the apparent coverage gap less dire than it appears.
Per-dimension breakdown
Quality
7.5/10data confidence 100%| Component | Sub-score |
|---|---|
| ROE | 10.0 |
| ROA | 10.0 |
| Gross margin | 4.8 |
| Op margin | 10.0 |
| Net margin | 9.7 |
| Current ratio | 4.6 |
| FCF quality | 5.4 |
| Moat | 5.6 |
| Piotroski F | 7.8 |
- ▸Excellent ROE: 97%
- ▸Strong margins: 19%
- ▸Earnings quality warning: 71% FCF/NI
- ▸Strong Piotroski F-Score: 7/9
Growth
4.1/10data confidence 67%| Component | Sub-score |
|---|---|
| Rev growth | 3.7 |
| EPS growth | 4.4 |
Momentum
6.6/10data confidence 100%| Component | Sub-score |
|---|---|
| RSI | 5.0 |
| MACD | 10.0 |
| OBV | 10.0 |
| MA position | 8.0 |
| Volume | 0.0 |
- ▸Volume accumulation (rising OBV)
- ▸Above 200-MA but MA slope flat
Sentiment
5.1/10data confidence 100%| Component | Sub-score |
|---|---|
| Analyst rating | 5.0 |
| Price target | 5.3 |
| erm sentiment | 5.0 |
Insider
5.0/10data confidence 50%| Component | Sub-score |
|---|---|
| materiality | 5.0 |
| holder change | 5.1 |
- ▸Negligible insider buying — $199,880 (0.000% of mkt cap)
Peer rank
4.3/10data confidence 80%| Component | Sub-score |
|---|---|
| value rank | 4.9 |
| quality rank | 9.3 |
| growth rank | 2.8 |
- ▸Superior ROE vs peers
- ▸Best-in-class margins
Technical
2.9/10data confidence 100%| Component | Sub-score |
|---|---|
| bollinger | 0.6 |
| support resistance | 0.2 |
| 52w position | 7.9 |
Risk (lower is worse)
5.6/10data confidence 100%| Component | Sub-score |
|---|---|
| short interest | 8.3 |
| days to cover | 3.9 |
| volatility | 7.7 |
| put call | 5.0 |
| implied vol | 7.6 |
| max pain risk | 3.0 |
| beta | 6.9 |
| debt equity | 2.2 |
- ▸Above max pain $210
Catalyst
5.9/10data confidence 100%| Component | Sub-score |
|---|---|
| erm | 5.0 |
| earnings history | 10.0 |
| earnings timing | 5.0 |
| surprise avg | 3.6 |
| dividend safety | 6.0 |
- ▸Perfect beat streak: 4Q
- ▸Dividend: 244.0%
How the verdict was assembled
Engine trigger
Multiple concerning factors. Consider reducing position.
Engine technical detail
verdict_path:
L4:PATH_F_SELLPassed (7)
- MOMENTUM:6.6>=5.5
- INSIDER:OK
- DEATH_CROSS:QUALITY_MOMENTUM_EXEMPT
- NEWS_EVENTS:NONE_RECENT
- EARNINGS_PROXIMITY:33d clear
- SEMI_CYCLE_PEAK:CLEAR
- MATERIALS_CYCLE_PEAK:CLEAR
Failed (1)
- ASYMMETRY:-0.8=NEGATIVE
Warning (2)
- DEATH_CROSS:quality=7.5>=7.5+momentum=6.6>=5.0 exempted
- 8K_CSUITE_CHANGE:5.02 (officer departure/appointment)
Reward-to-Risk
-0.81
Upside
-8.2%
Downside
10.1%
Sizing output
AVOID
SetupMOMENTUM_CONT — Trend continuation, RSI 70, MACD bullish
EdgeNO_EDGE — No clear edge identified
SuitabilityMODERATE — Balanced profile
Investment implication
The F-path SELL output reflects an overall score of 3.7 below the 5.6 soft trigger — multiple weakening dimensions accumulated rather than a single hard-floor breach. The strongest dimension ( Quality at 7.5) was not enough to lift the adjusted overall above the threshold. Co-occurring failed gates ( ASYMMETRY:-0.8=NEGATIVE) reinforce the read. Current asymmetry R:R is -0.81 — supplementary context, not the trigger for this path.
The strongest dimensions are Quality at 7.5, Momentum at 6.6, and Catalyst at 5.9; the weakest are Technical at 2.9, Growth at 4.1, and Peer rank at 4.3. The V9 engine flagged 1 failed gate with 2 warnings, producing an asymmetric reward-to-risk of -0.81 and an engine sizing output of AVOID.
What would invalidate the thesis
Falsifying conditions — when triggered, the corresponding pillar's thesis is invalidated.
- P1Operating margins of 19% and a Piotroski F-Score of 7 out of 9 place this company among the highest-quality businesses in its peer group, with peer-ranking data confirming best-in-class margins and superior return on equity versus peers — though the high return on equity figure is substantially influenced by a buyback-shrunk equity base.
Trip ifOperating margin compresses below 15% for 2 consecutive quarters.
- P2The company has beaten consensus EPS in each of the last 4 quarters, including a 3.7% beat in the most recent period, demonstrating a consistent pattern of meeting or exceeding analyst expectations.
Trip ifEPS surprise falls below 0% for 2 consecutive quarters.
- P3The stock is currently trading above its near-term take-profit target, making the reward-to-risk ratio unfavorable and leaving no headroom to the resistance level; entering or adding to a position at these levels means committing capital at the upper bound of the near-term expected range.
Trip ifStock price falls more than 5% below the take-profit target of approximately $258.
- P4Debt-to-equity of 2.8 carries an explicit leverage penalty, and the dividend payout has been flagged at 245% of earnings in the quality data — a level that, if measured against reported net income, raises questions about the sustainability of the dividend without recourse to balance-sheet sources.
Trip ifDebt-to-equity ratio falls below 2.0x.