By Sam Boughedda
Investing.com - Illinois Tool Works (NYSE:ITW) shares were downgraded from Hold to Sell by a Deutsche Bank (ETR:DBKGn) analyst in a note to investors Monday.
The analyst, who has a $188 price target on the stock, explained that from a short-term perspective, they dislike ITW's end market/geographic exposure and see a downside to full-year guidance.
"Under Chairman & CEO Scott Santi's stewardship, ITW has generally been a great stock to own in the Industrials complex over the past decade. We commend the company for the massively successful execution of its Enterprise Strategy over the course of 2012-17, which saw margins increase nearly 700bps, in excess of management's own external goals. But today, we struggle to form an attractive, clear medium-term narrative to justify the stock's premium valuation," wrote the analyst. "At its core, we believe ITW is a disparate collection of mostly GDP-type growth businesses, and we are not convinced that broad-based, sustainable share gain is happening."
The analyst stated the medium-term narrative is "difficult to identify," and they are unable to map sizeable pieces of the business to major secular growth themes that can drive a cycle-over-cycle step-up in organic growth.
"In a nutshell, we are not sure why this is a stock investors need to own for the next several years. And yet, the stock trades at a very large 28% premium to peers on NTM P/E, much higher than its more normal 16-18% premium," said the Deutsche Bank analyst.