Home > Comparison > Industrials > ITW vs AOS
The strategic rivalry between Illinois Tool Works Inc. and A. O. Smith Corporation shapes the industrial machinery sector’s future. Illinois Tool Works operates as a diversified industrial giant across multiple segments, while A. O. Smith specializes in residential and commercial water heating solutions. This head-to-head pits broad industrial scale against focused product leadership. This analysis will reveal which trajectory offers a superior risk-adjusted return for a diversified portfolio in today’s complex market environment.
Table of contents
Companies Overview
Illinois Tool Works and A. O. Smith Corporation hold pivotal roles in the industrial machinery sector, shaping diverse market niches.
Illinois Tool Works Inc.: Diverse Industrial Powerhouse
Illinois Tool Works Inc. dominates as a global manufacturer of industrial products and equipment. Its revenue stems from seven segments, including automotive OEM parts, food equipment, welding, and polymers. In 2026, ITW emphasizes innovation and integrated solutions to strengthen its broad industrial footprint and enhance operational efficiency across varied end markets.
A. O. Smith Corporation: Water Heating and Treatment Specialist
A. O. Smith excels in residential and commercial water heating and treatment products. Its sales focus on water heaters, boilers, and filtration systems across North America, China, Europe, and India. The company’s 2026 strategy centers on expanding global distribution channels and advancing sustainable technologies within its core heating and water treatment segments.
Strategic Collision: Similarities & Divergences
Both companies operate in industrial machinery but contrast sharply in scope and focus. ITW pursues a diversified industrial portfolio, while A. O. Smith concentrates on water heating and treatment. Their primary battleground lies in innovation-driven product differentiation within their specialized domains. This divergence creates distinct investment profiles—broad industrial exposure versus niche market leadership.
Income Statement Comparison
The following data dissects the core profitability and scalability of both corporate engines to reveal who dominates the bottom line:
| Metric | Illinois Tool Works Inc. (ITW) | A. O. Smith Corporation (AOS) |
|---|---|---|
| Revenue | 15.9B | 3.8B |
| Cost of Revenue | 8.96B | 2.36B |
| Operating Expenses | 2.68B | 0.76B |
| Gross Profit | 6.94B | 1.46B |
| EBITDA | 5.11B | 0.79B |
| EBIT | 4.71B | 0.71B |
| Interest Expense | 283M | 13.5M |
| Net Income | 3.49B | 0.53B |
| EPS | 11.75 | 3.65 |
| Fiscal Year | 2024 | 2024 |
Income Statement Analysis: The Bottom-Line Duel
This income statement comparison reveals which company runs a more efficient and profitable corporate engine over recent years.
Illinois Tool Works Inc. Analysis
Illinois Tool Works posts a solid revenue near 16B in 2024, slightly down 1.3% from 2023, yet net income soars 18% to 3.49B. Gross margin stands strong at 43.65%, reflecting impressive cost control. Net margin expands to 21.94%, driven by a 15% jump in EBIT, signaling robust operational efficiency and earnings momentum.
A. O. Smith Corporation Analysis
A. O. Smith’s revenue edges up modestly to 3.83B in 2025, growing only 0.3% year-over-year, with net income rising 2.4% to 546M. Gross margin at 38.83% and net margin at 14.26% show healthy profitability but trail ITW. EBIT growth is muted at 3%, indicating stable but less dynamic earnings expansion compared to its peer.
Margin Strength vs. Revenue Scale
ITW delivers a commanding margin advantage and stronger earnings growth despite a slight revenue dip. AOS shows steadier revenue but weaker margin expansion. For investors prioritizing operational efficiency and profit growth, ITW’s profile appears more attractive given its superior margin health and earnings momentum.
Financial Ratios Comparison
These vital ratios act as a diagnostic tool to expose the underlying fiscal health, valuation premiums, and capital efficiency of each company:
| Ratios | Illinois Tool Works Inc. (ITW) | A. O. Smith Corporation (AOS) |
|---|---|---|
| ROE | 1.05 | 0.26 |
| ROIC | 0.27 | 0.24 |
| P/E | 21.58 | 17.13 |
| P/B | 22.69 | 4.39 |
| Current Ratio | 1.36 | 1.50 |
| Quick Ratio | 0.99 | 0.94 |
| D/E | 2.44 | 0.09 |
| Debt-to-Assets | 0.54 | 0.06 |
| Interest Coverage | 15.07 | 53.93 |
| Asset Turnover | 1.06 | 1.22 |
| Fixed Asset Turnover | 6.91 | 5.62 |
| Payout ratio | 0.49 | 0.36 |
| Dividend yield | 2.25% | 2.09% |
| Fiscal Year | 2024 | 2025 |
Efficiency & Valuation Duel: The Vital Signs
Ratios act as the company’s DNA, revealing hidden risks and operational excellence that drive long-term shareholder value and market positioning.
Illinois Tool Works Inc.
Illinois Tool Works exhibits exceptional profitability with a 105% ROE and a robust 21.9% net margin. Its P/E of 21.6 suggests a fairly valued stock, yet an elevated P/B of 22.7 indicates some price premium. The 2.25% dividend yield underlines consistent shareholder returns amid moderate leverage risks.
A. O. Smith Corporation
A. O. Smith posts solid profitability, showing a 25.6% ROE and a 14.3% net margin. The P/E of 17.1 appears reasonable, supported by a low debt-to-equity of 0.09, signaling financial prudence. A 2.09% dividend yield complements its strategy, balancing growth with shareholder income efficiently.
Premium Valuation vs. Operational Safety
Illinois Tool Works offers superior returns but carries higher leverage and valuation multiples. A. O. Smith balances solid profitability with conservative debt and a fairer valuation. Investors prioritizing stability and moderate risk might prefer A. O. Smith, while those seeking aggressive growth may lean toward Illinois Tool Works.
Which one offers the Superior Shareholder Reward?
I see Illinois Tool Works (ITW) delivers a 2.25% dividend yield with a payout ratio near 49%, supported by strong free cash flow coverage above 85%. ITW also maintains an intense buyback program, enhancing total returns. A. O. Smith (AOS) yields slightly less at 2.1%, with a lower payout ratio around 36%, indicating room for growth reinvestment. AOS’s buybacks are more modest but steady. ITW’s distribution model balances generous dividends and buybacks sustainably, backed by robust margins and leverage. In contrast, AOS prioritizes reinvestment and moderate dividends with strong balance sheet health. For 2026 total shareholder return, I favor ITW’s aggressive yet sustainable reward approach over AOS’s conservative payout.
Comparative Score Analysis: The Strategic Profile
The radar chart reveals the fundamental DNA and trade-offs of Illinois Tool Works Inc. and A. O. Smith Corporation, highlighting their financial strengths and valuation nuances:
Illinois Tool Works shows exceptional operational efficiency with top ROE and ROA scores but struggles with leverage, scoring very unfavorably on debt-to-equity and price-to-book. A. O. Smith presents a more balanced profile, maintaining strong profitability metrics while managing debt more conservatively and offering better valuation scores. I view A. O. Smith as the safer, well-rounded pick, while Illinois Tool Works relies heavily on operational excellence despite financial leverage risks.
Bankruptcy Risk: Solvency Showdown
The Altman Z-Scores place both firms firmly in the safe zone, signaling strong resilience to bankruptcy risks in this cycle:
Illinois Tool Works scores 8.09, closely matched by A. O. Smith’s 8.33. Both companies demonstrate robust solvency, reducing concerns over financial distress despite Illinois Tool Works’ higher leverage.
Financial Health: Quality of Operations
Both companies share a Piotroski F-Score of 7, indicating strong financial health and quality of operations with no immediate red flags:
This score reflects solid profitability, liquidity, and operational efficiency for both firms. Neither shows signs of internal weakness, supporting their positions as fundamentally sound investments.
How are the two companies positioned?
This section dissects the operational DNA of ITW and AOS by comparing revenue distribution by segment alongside their internal strengths and weaknesses. The objective is to confront their economic moats and identify which business model delivers a more resilient, sustainable competitive advantage today.
Revenue Segmentation: The Strategic Mix
This visual comparison dissects how Illinois Tool Works Inc. and A. O. Smith Corporation diversify their income streams and where their primary sector bets lie:
Illinois Tool Works Inc. reveals a well-balanced revenue mix, with no single segment dominating. Automotive OEM leads at $3.19B, but Test and Measurement and Electronics ($2.82B) and Food Equipment ($2.65B) closely follow. In contrast, A. O. Smith Corporation lacks available segmentation data. ITW’s diversification reduces concentration risk and supports ecosystem lock-in across industrial sectors.
Strengths and Weaknesses Comparison
This table compares the strengths and weaknesses of Illinois Tool Works Inc. (ITW) and A. O. Smith Corporation (AOS):
ITW Strengths
- Diversified revenue streams across seven segments
- Strong profitability with 21.94% net margin and 27.19% ROIC
- Favorable interest coverage of 16.63
- Robust global presence with significant North America and Europe sales
AOS Strengths
- Favorable profitability with 14.26% net margin and 23.94% ROIC
- Very low debt-to-equity ratio of 0.09 and low debt-to-assets of 6.11%
- Strong interest coverage of 54.03
- Growing North America and Rest of World sales
ITW Weaknesses
- High leverage with debt-to-equity of 2.44 and debt-to-assets at 53.61%
- Unfavorable price-to-book ratio of 22.69
- Neutral liquidity ratios with quick ratio below 1.0
AOS Weaknesses
- Unfavorable weighted average cost of capital at 10.08%
- Unfavorable price-to-book ratio of 4.39
- Neutral liquidity with quick ratio below 1.0
ITW’s strength lies in its broad diversification and strong profitability, though its high leverage poses financial risk. AOS benefits from low leverage and solid profitability but faces challenges with its cost of capital and valuation metrics. Both companies maintain neutral liquidity ratios, which warrants monitoring.
The Moat Duel: Analyzing Competitive Defensibility
A structural moat alone shields long-term profits from relentless competition and market pressures. Let’s examine how Illinois Tool Works and A. O. Smith defend their turf:
Illinois Tool Works Inc. (ITW): Diversified Industrial Powerhouse with Cost Advantage
ITW leverages a robust cost advantage and diversified industrial segments, delivering a stellar 18.5% ROIC above WACC. Margin stability and 30% net margin growth confirm its strong moat. Expansion into emerging markets and innovation in construction products could further deepen this advantage in 2026.
A. O. Smith Corporation (AOS): Specialized Water Heating Leader with Brand Equity
AOS relies on brand strength and specialized water heating technology, generating a 13.9% ROIC exceeding WACC by a wide margin. While margins trail ITW, steady EPS growth and global expansion into water treatment markets bolster its competitive positioning. Innovation in smart water systems may disrupt markets in 2026.
Cost Leadership vs. Brand Specialization: The Moat Showdown
ITW’s wider moat stems from diversified cost advantages and consistent margin expansion. AOS’s narrower moat benefits from focused brand equity and niche specialization. I believe ITW is better equipped to defend and grow its market share amid economic cycles and competitive pressures.
Which stock offers better returns?
Stock price movements over the past year reveal contrasting trends: Illinois Tool Works (ITW) shows modest gains with accelerating momentum, while A. O. Smith (AOS) experiences a pronounced decline despite recent recovery signs.
Trend Comparison
Illinois Tool Works (ITW) exhibits a bullish trend with a 3% price increase over 12 months, marked by accelerating momentum and a high near 277.52. Volatility is moderate with a 10.7 standard deviation.
A. O. Smith (AOS) shows a bearish 14.37% decline over the same period, despite recent acceleration. The stock’s highest price reached 90.59, with volatility lower than ITW at 7.87 standard deviation.
Comparing both, ITW outperforms AOS in overall market returns despite AOS’s recent price rebound. ITW’s steady upward trend contrasts with AOS’s sustained weakness.
Target Prices
Analyst consensus projects moderate upside potential for Illinois Tool Works Inc. and A. O. Smith Corporation.
| Company | Target Low | Target High | Consensus |
|---|---|---|---|
| Illinois Tool Works Inc. | 230 | 275 | 254 |
| A. O. Smith Corporation | 75 | 85 | 79 |
Illinois Tool Works trades near its consensus target at $261, signaling fair valuation. A. O. Smith’s $79 consensus target suggests a 7% upside from the current $73.49 price.
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How do institutions grade them?
Illinois Tool Works Inc. Grades
Below is a summary of recent institutional grades for Illinois Tool Works Inc.:
| Grading Company | Action | New Grade | Date |
|---|---|---|---|
| Wells Fargo | Maintain | Underweight | 2026-01-07 |
| Goldman Sachs | Downgrade | Sell | 2025-12-16 |
| B of A Securities | Upgrade | Neutral | 2025-11-18 |
| Barclays | Maintain | Underweight | 2025-10-27 |
| Wells Fargo | Maintain | Underweight | 2025-10-27 |
| Truist Securities | Maintain | Hold | 2025-10-27 |
| Truist Securities | Maintain | Hold | 2025-10-08 |
| Barclays | Downgrade | Underweight | 2025-08-14 |
| Barclays | Maintain | Equal Weight | 2025-08-04 |
| Wells Fargo | Maintain | Underweight | 2025-07-31 |
A. O. Smith Corporation Grades
Below is a summary of recent institutional grades for A. O. Smith Corporation:
| Grading Company | Action | New Grade | Date |
|---|---|---|---|
| Stifel | Maintain | Buy | 2026-01-30 |
| Citigroup | Maintain | Neutral | 2026-01-30 |
| DA Davidson | Maintain | Neutral | 2025-11-13 |
| Stifel | Maintain | Buy | 2025-10-29 |
| Citigroup | Maintain | Neutral | 2025-10-29 |
| Oppenheimer | Maintain | Outperform | 2025-07-28 |
| UBS | Maintain | Neutral | 2025-07-28 |
| Baird | Maintain | Neutral | 2025-07-25 |
| Stifel | Maintain | Buy | 2025-07-25 |
| Stifel | Maintain | Buy | 2025-07-21 |
Which company has the best grades?
A. O. Smith Corporation consistently receives buy and neutral ratings, indicating steady institutional confidence. Illinois Tool Works Inc. faces multiple underweight and sell ratings, suggesting weaker sentiment. Investors may interpret AOS’s stronger grades as a sign of relative favorability in institutional views.
Risks specific to each company
The following categories identify critical pressure points and systemic threats facing Illinois Tool Works Inc. and A. O. Smith Corporation in the 2026 market environment:
1. Market & Competition
Illinois Tool Works Inc.
- Diversified industrial segments face intense global competition and cyclical automotive demand risks.
A. O. Smith Corporation
- Concentrated in water heating and treatment, vulnerable to regional housing market fluctuations and competitive pricing pressures.
2. Capital Structure & Debt
Illinois Tool Works Inc.
- High leverage with debt-to-equity at 2.44 signals financial risk despite strong interest coverage.
A. O. Smith Corporation
- Low leverage with debt-to-equity at 0.09 supports financial flexibility and lower default risk.
3. Stock Volatility
Illinois Tool Works Inc.
- Beta of 1.17 indicates moderate sensitivity to market swings typical for industrial machinery.
A. O. Smith Corporation
- Higher beta of 1.35 shows increased stock volatility, reflecting sensitivity to economic cycles and commodity prices.
4. Regulatory & Legal
Illinois Tool Works Inc.
- Exposure to global regulatory standards across diverse industrial products may increase compliance costs.
A. O. Smith Corporation
- Product safety and environmental regulations in water treatment and heating markets pose compliance challenges.
5. Supply Chain & Operations
Illinois Tool Works Inc.
- Complex global supply chains risk disruption amid geopolitical tensions and raw material price volatility.
A. O. Smith Corporation
- Concentrated manufacturing footprint exposes company to regional supply chain bottlenecks and labor cost inflation.
6. ESG & Climate Transition
Illinois Tool Works Inc.
- Industrial manufacturing faces pressure to reduce emissions and adopt sustainable practices amid tightening ESG standards.
A. O. Smith Corporation
- Growing demand for energy-efficient water heating products aligns with climate transition but requires innovation investments.
7. Geopolitical Exposure
Illinois Tool Works Inc.
- Global footprint subjects ITW to trade tariffs, currency risks, and political instability in emerging markets.
A. O. Smith Corporation
- Significant exposure to China and India markets increases geopolitical and regulatory risk amid geopolitical tensions.
Which company shows a better risk-adjusted profile?
A. O. Smith’s low leverage and favorable debt metrics present a stronger risk-adjusted profile. ITW’s high debt levels and broad geopolitical exposure are its largest risks. The contrast in capital structure highlights AOS’s superior financial stability despite its higher stock volatility.
Final Verdict: Which stock to choose?
Illinois Tool Works Inc. (ITW) stands out for its unmatched capital efficiency and robust value creation, evidenced by a very favorable moat and growing ROIC. Its point of vigilance remains elevated leverage, which could amplify risks in volatile markets. ITW fits well within aggressive growth portfolios seeking durable competitive advantages.
A. O. Smith Corporation (AOS) impresses with a solid strategic moat rooted in consistent value creation and a remarkably conservative balance sheet. Its low debt and strong interest coverage offer better stability than ITW. AOS suits GARP investors who prioritize steady growth paired with financial resilience.
If you prioritize aggressive growth and durable competitive advantages, ITW is the compelling choice due to its superior capital returns and operational efficiency. However, if you seek stability with reasonable growth and lower financial risk, AOS offers better safety and a favorable moat at a moderate valuation.
Disclaimer: Investment carries a risk of loss of initial capital. The past performance is not a reliable indicator of future results. Be sure to understand risks before making an investment decision.
Go Further
I encourage you to read the complete analyses of Illinois Tool Works Inc. and A. O. Smith Corporation to enhance your investment decisions:
