Sterne Agee Raises ITW EPS Estimates; Target Goes To $64

Sterne Agee is raising its Illinois Tool Works ITW FY2011 and FY2012 EPS to $3.75 and $4.30 from $3.65 and $4.00, respectively, factoring in a lower tax rate (29.5% vs. 31%), and continuing operating leverage in Power Systems (15.5% revenue and 21.3% operating margin vs. 10.4% and 20.4% previously), and Food Equipment (16.5% revenue vs. 9.3 previously), while accounting for a stronger recovery in Construction and Decorative Surfaces (up 13.3% and 9.5% vs. 11.4% and 6.6% previously). “With respect to 4Q10, we are encouraged by the 5%+ growth in U.S. Auto builds, the 21.4% organic growth in Power Systems (8th consecutive quarter of 20%+ org growth) and the turnaround in Food Equipment (5.5% org growth, after 29 months of flat or severely negative declines),” Sterne Agee writes. “Additionally, Construction and Decorative Surfaces are turning and restructuring benefits will likely contribute in 2H11 as volumes recover.” Sterne Agee is maintaining its Neutral rating and is raising its PT to $64 from $55. Illinois Tool Works closed Monday at $53.49.