Illinois Tool Works Is On Solid Ground

It Took A Hammering
If you're looking for a diversified manufacturer that could benefit from the expanding economy, go no further than Illinois Tool Works (ITW ). From heavy machinery to plastic drink containers, it makes products at 650 companies worldwide. But the stock has been weak on worries that 49% of its revenues comes from the real estate and automotive indus-tries -- both under pressure. But Robert McCarthy of broker Robert W. Baird, who has a price target of 109 on the stock, now at 84, says ITW's U.S. real estate is mainly commercial construc-tion, less vulnerable than homebuilding to falling prices. Automotive revenues, 18% of sales, derive mostly from South America. Brian Langenberg of Foresight Research Solutions pegs the price at 105 to 110. "This is a bricks-and-mortar company, and they do it well," he says. The stock trades at 16 times its 2005 estimates, vs. its historic range of 17 to 25 times forward earnings. ITW expects earnings of $5.02 to $5.14 a share, mainly because of higher income from leasing and investing. The IBES consensus earnings estimate for 2006 is $5.61.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Mara Der Hovanesian

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