The datasheet for the IRF1404Z does indeed show that the TO-220 package has a limit of 120 A continuous at 25 C. It should be noted that the junction temperature is rated for up to 175 C, which might provide a lot of headroom for, but we’ll see.

The minimum dimensions for the drain and source leads are 0.36 mm by 1.14 mm. This gives us some 0.41 mm^2 cross sectional area. Assuming the leads are made of aluminum – I’m on mobile and can’t quickly check the composition for the generic TO-220 package – which has a resistance of about 60 Ohm per km, and with the lead being a maximum length of 14.73 mm, the resistance of either lead will be some 0.88 mOhm.

At 120 Amps, the resistance heating would be about 12.6 Watts. That’s quite hot for a short lead, and there’s two of them. But the kicker is that these aluminum leads are also thermally conductive, either into the package towards the junction, or away and into a generous PCB layer or to suitably-sized copper wires.

Either way, that will sink a fair amount of heat, although the thermal resistance for the package legs is not given in this datasheet. It may be defined for generic TO-220 packages though.

As a practical matter, to operate a MOSFET ar 120 A would likely require active cooling, and their test jig plus all reasonable implementations will have a fan. Moderate airflow over the leads will also wick temperature away, which might bring the leads down to a “hot but not fire-inducing” levels. But an EE or thermal engineer would need to sit down to do that simulation.