On May 27, 2015, Zacks Investment Research downgraded Illinois Tool Works Inc. ITW to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Buy).
Why the Downgrade?
Weak equipment-related demand in the end-markets and certain product-line simplification activities had adversely affected Illinois Tool Works’ first-quarter 2015 results. The company also anticipates the aggregate capital spending on industrial equipment purchases to be lower in the upcoming quarter, due to dampening global economy. Taking into account these aspects, the company lowered the growth forecast for organic revenues in 2015 to 1–2% from the previous projection of 2.5–3.5%.
Illinois Tool Works considers internationalization as an important growth strategy. However, greater geographical diversification exposes the company to risks associated with exchange-rate fluctuations. In first-quarter 2015, adverse foreign currency movements impacted revenue growth by 7%. This headwind is likely to persist in 2015 as well, hurting revenues by 7% and earnings by 15 cents per share.
Illinois Tool Works faces a complex and competitive environment due to the wide diversity of its products as well as vastness of the markets it serves. Difficulties or delays in research and development or production and services, along with the failure of new products and technologies in the market, may significantly impact the company's market position. Moreover, volatility in input prices or supply exposes Illinois Tool Works to risks associated with margin loss. A sudden rise in the market price of any major input or supply shortage of the same can harm the company’s operational process and subsequently, margins in the near term.
Stocks to Consider
Better-ranked stocks in the industry include RBC Bearings Inc. ROLL, Middleby Corp. MIDD and Albany International Corp. AIN. RBC Bearings Inc. sports a Zacks Rank #1 (Strong Buy), while both Middleby Corp. and Albany International Corp. hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment