Goldman Sachs Downgrades Illinois Tool Works to Sell, Shares Fall 2%

Core Viewpoint - Goldman Sachs downgraded Illinois Tool Works (NYSE: ITW) to Sell from Neutral, setting a price target of $230 due to expectations of below-average growth compared to large-cap cyclical peers [1] Group 1: Company Performance - ITW's organic revenue and earnings growth are expected to continue lagging behind peers, with organic growth averaging around 2% and earnings per share growth at approximately 5.5% since 2017 [2][3] - The company previously benefited from a significant simplification of its organizational structure, leading to about 800 basis points of margin expansion from 2012 to 2017 [2] Group 2: Market Outlook - Goldman Sachs anticipates that ITW's substantial exposure to consumer end markets may negatively impact its performance, leading to below-average organic and EPS growth over the next two years [3] - The firm is constructive on an overall inflection in industrial activity but remains cautious about ITW's specific market conditions [3] Group 3: Valuation and Price Target - Goldman Sachs sees modest downside risk to earnings estimates and believes the stock's valuation multiple is unlikely to re-rate due to the pace of earnings improvement [4] - The $230 price target is based on a 15.0x multiple applied to projected EBITDA for quarters five through eight, implying a 2027 free cash flow yield of approximately 5% [4]