FBR Capital Markets raised its profit view of Illinois Tool Works Inc. (ITW) on Monday, following upbeat outlook commentary at the company's annual outlook meeting Friday. The brokerage reiterated its 'outperform' rating on shares of the industrial products maker, while increasing its price target to $62 from $60.

The company still expects fourth quarter earnings from continuing operations of 74 cents to 82 cents a share, assuming a revenue growth of 7 percent to 9 percent. Wall Street expects profit of 80 cents a share on revenue of $4.09 billion.

The company reaffirmed its full year 2010 earnings from continuing operations guidance of $2.99 to $3.07, assuming a revenue growth of 13 percent to 14 percent. Street expects profit of $3.08 a share on revenue of $15.79 billion.

Key positive surprises included 2011 expectations for 30 percent to 35 percent incremental margins on total revenue growth (5 percent to 7 percent organic and acquisitions) or significantly above our low-20s expectation, reflecting continued benefit from cost-cutting and volume leverage, said Ajay Kejriwal, an analyst at FBR Capital.

Management also provided a positive initial roadmap for 2011–2015 organic growth of 5 percent to 6 percent, with next cycle peak margins 50 basis points to 70 basis points above the previous high of about 17.0 percent and return on invested capital 15 percent to 17 percent over the cycle.

Kejriwal said this long-term organic goal is higher than ITW’s 3 percent to 4 percent historical rate and driven by increased emphasis on innovation and new product introduction, emerging markets, and focus on three new growth platforms: Automotive Aftermarket, Test & Measurement, and Electronics.

Kejriwal said these platforms are expected to grow about 15 percent annually, doubling to $4.2 billion-plus in revenue by 2015. Management also highlighted the potential for six new growth platforms built through a combination of existing businesses and acquisitions.

While specifics were not immediately available, Kejriwal expects these to be consumables-focused, rapid growth businesses in alternative energy (solar, wind), healthcare components (filters, etc.), and hygiene.

With regard to shares, Kejriwal likes ITW’s mix at this stage in the cycle, with several businesses well below prior peak and potential for 30 percent to 35 percent incremental margins as revenues recover.

We recognize that the recent slow pace of acquisitions remains a hot button with investors, but expect these concerns to dissipate as ITW potentially announces sizeable deals. We note that management emphasized acquisitions remain a top priority for capital use where its goal is for $1.0 billion-plus in 2011, with potential for more depending on availability of the right platform/deals, said Kejriwal.

The brokerage increased its 2010 EPS estimate for Illinois Tool Works to $3.10 from $3.08, its 2011 estimate to $3.85 from $3.55 and its 2012 estimate to $4.40 from $4.00.

Kejriwal reiterated its 'outperform' rating and sees valuation at 13.1 times of 2011 EPS as an attractive opportunity to accumulate shares.

Illinois Tool Works shares closed Friday's regular trading session up 3.70 percent at $50.41 on the NYSE.

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