Morningstar

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.

Securities In This Article
Illinois Tool Works Inc
(ITW)

Nothing in narrow-moat-rated

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.

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About the Author

Joshua Aguilar

Director
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Joshua Aguilar is a director, AM Resources, for Morningstar*. After previously covering multi-industrial conglomerates and financial services firm, he is now assuming coverage of exploration and production firms in the oil and gas industry.

Prior to joining Morningstar in 2016, Aguilar was a practicing business transactional attorney in Florida. Aguilar joined Morningstar in 2016 as an Associate on the Financials team, was promoted to Analyst on the Industrials team in 2018, and Senior Analyst in 2022. He’s also served as our Associates Coordinator since 2021 and led our diversity efforts as DEI co-chair since 2020. Aguilar has served as a key mentor to several Associates on their path to Analyst. He’s also hosted a Morningstar earnings townhall, participated in Analyzing MORN, and been a strong contributor through both client interactions and his GE stock call. Josh co-authored an Outstanding Research Achievement (ORA)-winning piece with Kris Inton on CEO compensation in 2021. He’s also taught the model to new hires for many years as part of the Valuation Committee.

Aguilar graduated Magna cum laude with a B.A. in political science and criminology from the University of Florida. He also has an MBA from Rollins College and a J.D. from Wake Forest University. Aguilar remains an active member of the Florida Bar Association.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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