Help: Security Analysis (ITW)

[correia]

Hoping some of you stock gurus can help me with a project in my Investments class. I basically have to analyze the common stock of Illinois Tool Works (ITW). The problem is I have no idea what I'm doing. I have to reach an actionable conclusion (buy,sell, or hold) and generate a value for ITW based on my own forcast of future performance. Any thoughts or ideas you guys have would be greatly appreciated.

[buffett]

It sounds like you have a lot of work to do. Here's one of the many questions to which you will want to find an answer:
What are the multiples (EV/EBIT, EV/EBITDA, P/S, P/E, etc., etc.) at which the major mergers and acquisitions of similar companies took place over the last five or ten years?

[edtost]

[ QUOTE ]
It sounds like you have a lot of work to do. Here's one of the many questions to which you will want to find an answer:
What are the multiples (EV/EBIT, EV/EBITDA, P/S, P/E, etc., etc.) at which the major mergers and acquisitions of similar companies took place over the last five or ten years?

[/ QUOTE ]

To actually use any of that information, make sure you look up the percentage assumed synergies for those M+A deals.

[correia]

I'm in a bad way.

[lastsamurai]

What kind of info do you need? Technical or fundamental analysis?

[correia]

Here is what he told us:

Your assignment is to write an alaysis of the common stock of Illinois Tool Works (ITW). A few guidelines should help.

1. Be sure to reach an actionable conclusion - i.e., buy sell or hold. You must look at the long run using an investment perspective and generate a value for ITW based on your own forecast of future performance. You must also explain the basis for your forecast. You should also look at the short run (trading perspective) and market comparables. Remember that your conclusion is a function of current market price as well as your valuation.

Thats basically all he told us. Again, any help is greatly appreciated.

[DesertCat]

[ QUOTE ]
Here is what he told us:

Your assignment is to write an alaysis of the common stock of Illinois Tool Works (ITW). A few guidelines should help.

1. Be sure to reach an actionable conclusion - i.e., buy sell or hold. You must look at the long run using an investment perspective and generate a value for ITW based on your own forecast of future performance. You must also explain the basis for your forecast. You should also look at the short run (trading perspective) and market comparables. Remember that your conclusion is a function of current market price as well as your valuation.

Thats basically all he told us. Again, any help is greatly appreciated.

[/ QUOTE ]

Well, Ben Graham would tell you to look at the average of the last 3-5 years of sales and earnings to get a good ida of the next 3-5 years. Adjust your forecast for extraordinary changes in business. See how cash flow matches up to reported earnings.

Do you know how to do a discounted cash flow analysis? That's the basic way to determine intrinsic value from your forecast. Do you understand what enterprise value is? You'll want to incorporate that into your valuation. Give yourself a big margin of safety because predicting the future is a very inexact science.

Lastly, your actionable conclusion should be fairly easy. If it's clearly fully priced or over priced, sell. If it's clearly cheap, buy. If nothing is clear, hold!

Ben Graham would also say that market comparables and the short run (trading perspective) are meaningless and unpredictable. I find it surprising that a professor would even broach these topics in a security analysis class.

The reason I say comparables are meaningless, is if all the comparables are overvalued, they'll tend to make ITW look more attractive than it really is. The internet bubble was full of stocks that were much cheaper than their leading comparables. I know because I bought some before I really understood that valuation isn't relative. Ouch.

An exception would be private party value. That's where you look at what savvy buyers (not the stock market) pay for similar companies. But these savvy buyers are likely doing the same DCF valuation you would do to establish value.

Tell your professor I'm failing him...

Get a copy of some analyst reports on the security to get a sense for how these companies are valued. In general, you're going to have a few tools available: multiples/comps, DCF, etc. Your result should look like a typical analyst report.

[Scotty O]

[ QUOTE ]
Hoping some of you stock gurus can help me with a project in my Investments class. I basically have to analyze the common stock of Illinois Tool Works (ITW). The problem is I have no idea what I'm doing. I have to reach an actionable conclusion (buy,sell, or hold) and generate a value for ITW based on my own forcast of future performance. Any thoughts or ideas you guys have would be greatly appreciated.

[/ QUOTE ]

Technically the looks like it is ready to make a run back down to the 80 level. It has been going up in value on lower and lower volume. The last time it went up with volume was during the 3rd week of OCT. I would put a stop loss at this level with buy back in near 80 if volume drops off more at that level.

Scotty O

[correia]

Thanks for all the help guys, I really appreciate it. I'll be working on this through tomorrow night (due thursday), so feel free to leave any additional thoughts or comments on what others have said. Thanks Again.