Skip to Content
Stock Analyst Update

Market Unfairly Punishing Illinois Tool Works

A cut in guidance has sent shares plunging, but we see no permanent deterioration in the fundamentals of the business.

Mentioned:

Nothing in narrow-moat-rated  Illinois Tool Works’ (ITW) results alters our long-term view of the firm. The stock is down about 8% as of this writing on news that management is cutting its guidance. We are maintaining our fair value estimate of $147.

The overall firm’s revenue run rate, moreover, is relatively in line with our 2018 top-line estimates for the overall firm ($15.1 billion versus a $15.2 billion run rate). Furthermore, current overall margins are also relatively in line with our 2018 full-year estimates between 24% and 25% (currently 24.2% in the first half versus our expectation of 24.7%).

Management is adjusting GAAP EPS expectations downwards by $0.10 in the second half of the year versus prior guidance. The new range is $7.50 to $7.70 from $7.60 to $7.80, previously. That said, our 2018 GAAP EPS estimate is within the range of both the prior and updated guidance at $7.66. The reason for moderating second-half expectations is due to greater-than-anticipated currency headwinds. 

Furthermore, margins will ultimately be affected relative to prior expectations due to the timing of price/cost impacts. The largest impact is from the automotive segment, where due to cyclical factors, management claims it can take a little bit longer for ITW to realize price actions from new products to offset these dilutive impacts. We’re not concerned by either of these effects as we see no permanent deterioration in the fundamentals of the business.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Joshua Aguilar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.