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Here's Why You Should Avoid Investing in Illinois Tool Stock Now

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Illinois Tool Works Inc. (ITW - Free Report) has failed to impress investors with its recent operational performance due to persistent weakness in the Test & Measurement and Electronics segments. Also, given the company’s extensive international presence, foreign currency headwind is an added uncertainty.

Headquartered in Glenview, IL, Illinois Tool is a worldwide manufacturer of highly engineered products and specialty systems. The company's diversified range of industrial products and equipment is sold in multiple countries.

ITW currently carries a Zacks Rank #4 (Sell). In the past year, the stock has gained 12.8% compared with the industry’s 33.3% growth.

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Business Weakness: Softness in the consumer electronics, semiconductor and general industrial end markets is denting revenues at Illinois Tool’s Test & Measurement and Electronics segment. Lower demand in North America is affecting the segment’s electronics assembly businesses. Softness in the consumables and equipment business due to declining demand in the commercial, industrial, general industrial and oil and gas end markets is worrisome for the Welding segment. 

Lower demand in the United States and European commercial and residential end markets is weighing on the Construction Products segment. Amid this, the company lowered its revenue projection for 2024. It currently expects total revenues and organic revenues to be flat compared with growth of 2-4% and 1-3%, respectively, predicted earlier.

High Debt Level: The company's high debt levels are a concern. Its long-term debt balance at the end of second-quarter 2024 remained high at $6.4 billion, up 2.4% on a sequential basis. Exiting the second quarter, its short-term debt totaled $2 billion. Considering its high debt level, the company’s cash and cash equivalents of $862 million do not look impressive.

Forex Woes: Illinois Tool generates a substantial portion of its revenues from international operations. Although international businesses provide geographical diversity, the same exposes the company to unfavorable movements in foreign currencies and geopolitical issues. Also, higher contribution from international operations is detrimental to operating margin expansion as foreign sales usually carry lower margins than domestic. A stronger U.S. dollar is denting the company’s top line. In the second quarter, foreign currency translation had an adverse impact of 1.2% on Illinois Tool’s revenues.

Stocks to Consider

Some better-ranked companies from the same space are discussed below.

Graham Corporation (GHM - Free Report) currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GHM delivered a trailing four-quarter average earnings surprise of 133.3%. In the past 60 days, the Zacks Consensus Estimate for Graham’s fiscal 2025 earnings has increased 17.3%.

Crane Company (CR - Free Report) presently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter average earnings surprise of 11.2%.

In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 0.4%.

Parker-Hannifin Corporation (PH - Free Report) currently carries a Zacks Rank of 2. PH delivered a trailing four-quarter average earnings surprise of 2.6%.

In the past 60 days, the consensus estimate for Parker-Hannifin’s fiscal 2025 earnings has increased 1.3%.

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