Analyzing Illinois Tool Works (ITW) & 3M (MMM)

Illinois Tool Works (NYSE: ITW) and 3M (NYSE:MMM) are both large-cap industrial products companies, but which is the better investment? We will contrast the two businesses based on the strength of their valuation, analyst recommendations, profitability, earnings, dividends, risk and institutional ownership.

Volatility & Risk

Illinois Tool Works has a beta of 1.11, indicating that its share price is 11% more volatile than the S&P 500. Comparatively, 3M has a beta of 1.08, indicating that its share price is 8% more volatile than the S&P 500.

Institutional & Insider Ownership

74.8% of Illinois Tool Works shares are held by institutional investors. Comparatively, 65.8% of 3M shares are held by institutional investors. 0.9% of Illinois Tool Works shares are held by company insiders. Comparatively, 0.6% of 3M shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Profitability

This table compares Illinois Tool Works and 3M’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Illinois Tool Works 15.50% 46.57% 13.69%
3M 17.65% 47.83% 16.07%

Dividends

Illinois Tool Works pays an annual dividend of $2.60 per share and has a dividend yield of 1.9%. 3M pays an annual dividend of $4.70 per share and has a dividend yield of 2.3%. Illinois Tool Works pays out 42.1% of its earnings in the form of a dividend. 3M pays out 53.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Illinois Tool Works has raised its dividend for 53 consecutive years and 3M has raised its dividend for 58 consecutive years. 3M is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a summary of current recommendations and price targets for Illinois Tool Works and 3M, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Illinois Tool Works 0 6 6 0 2.50
3M 2 4 6 0 2.33

Illinois Tool Works presently has a consensus target price of $152.18, suggesting a potential upside of 9.99%. 3M has a consensus target price of $201.50, suggesting a potential downside of 2.17%. Given Illinois Tool Works’ stronger consensus rating and higher possible upside, equities research analysts clearly believe Illinois Tool Works is more favorable than 3M.

Valuation and Earnings

This table compares Illinois Tool Works and 3M’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Illinois Tool Works $13.96 billion 3.41 $3.70 billion $6.18 22.39
3M $30.53 billion 4.03 $8.53 billion $8.77 23.49

3M has higher revenue and earnings than Illinois Tool Works. Illinois Tool Works is trading at a lower price-to-earnings ratio than 3M, indicating that it is currently the more affordable of the two stocks.

Summary

3M beats Illinois Tool Works on 10 of the 16 factors compared between the two stocks.

Illinois Tool Works Company Profile

Illinois Tool Works Inc. is a manufacturer of industrial products and equipment. The Company operates through seven segments. The Automotive OEM segment produces components and fasteners for automotive-related applications. The Food Equipment segment offers commercial food equipment. The Test & Measurement and Electronics segment produces test and measurement, and electronic manufacturing and maintenance, repair and operations (MRO) solutions. The Welding segment produces welding equipment, consumables and accessories for industrial and commercial applications. The Polymers & Fluids segment produces adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance. The Construction Products segment supplies engineered fastening systems and solutions. The Specialty Products segment produces beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners.

3M Company Profile

3M Company is a technology company. It operates through five segments. The Industrial segment serves a range of markets, such as automotive original equipment manufacturer and automotive aftermarket, electronics, appliance, paper and printing, packaging, food and beverage, and construction. The Safety and Graphics segment serves a range of markets for the safety, security and productivity of people, facilities and systems. The Health Care segment serves markets that include medical clinics and hospitals, pharmaceuticals, health information systems, and food manufacturing and testing. The Electronics and Energy segment serves customers in electronics and energy markets, including solutions for the performance of electronic devices; electrical products, including infrastructure protection, and power generation and distribution. The Consumer segment serves markets that include consumer retail, office business to business, home improvement, drug and pharmacy retail, and other markets.

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