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Here's Why Shares of Illinois Tool Works Plunged 24% in 2018

By Scott Levine - Updated Apr 18, 2019 at 5:36PM

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When the bears on Wall Street growled last year, investors listened.

What happened

Reversing course from a 36% rise in 2017, shares of Illinois Tool Works (ITW 0.35%) fell 24% in 2018, according to data from S&P Global Market Intelligence. In addition to the overall downturn in the market, the company's inability to meet analysts' estimates and a bearish sentiment sounding loudly from Wall Street helped to push shares lower last year.

So what

Although Illinois Tool Works earned some upgrades in 2018, the downgrades clearly had the greater motivating effect on investors. In late June, for example, Wolfe Research initiated coverage on the stock with an underperform rating and a $148 price target, according to A couple of weeks later, Deutsche Bank also expressed pessimism and downgraded the stock to hold from buy with a price target of $152.

The sentiment, however, didn't last long; Deutsche Bank revisited the stock a few months later, downgrading it again -- this time to sell -- and assigned a price target of $125.

With a downtrending financial chart on a computer in the background, two people use pens to point at financial figures on a printout.

Image source: Getty Images.

Also voicing their concerns were an analyst at Credit Suisse, Jamie Cook, who reiterated his neutral rating and reduced his price target from $166 to $146 in late July, and Seth Weber, an analyst at RBC Capital, who reduced his price target to $150 from $165 while maintaining his sector perform rating on the stock.

Another factor propelling the sell-off in shares last year could be the company's inability to meet analysts' estimates. Although the company beat earnings estimates twice in the past three quarters and met the estimate once, the company struggled to meet expectations on the top line. In the second and third quarters of 2018, Illinois Tool Works missed revenue estimates by $21 million and $110 million, respectively.

Now what

It may be hard not to take Wall Street's strident bearish tone to heart. But investors should always remember to be skeptical about putting too much stock in analysts' actions, since they often maintain time horizons that are shorter than the multiyear holding periods we favor. Repeatedly, Illinois Tool Works reported strong financial results throughout 2018. Most recently, the company inspired optimism that the financial year would end on a positive note as it forecast earnings per share between $7.55 and $7.65. Should the company achieve the midpoint of this range, it will represent 15% growth over the $6.59 per share that it reported in 2017. 

For investors interested in gaining exposure in the industrials space, Illinois Tool Works represents a compelling option. As my fellow Fool Lee Samaha points out, the company has a clear path to growth, positioning itself as an intriguing option over the next few years.

Check out the latest Illinois Tool Works earnings call transcript.

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