Zacks Investment Research downgraded Stanley Black & Decker Inc. (SWK) to a Zacks Rank #5 (Strong Sell) on Nov 19, 2013.
Why the Downgrade?
Despite sound financial performance in the third quarter 2013, Stanley Black & Decker failed to create much confidence about its growth prospects for the rest of 2013 and for 2014. Let us first have a look at the company’s performance in the third quarter:
Earnings per share grew 13.9% year over year to $1.39 and surpassed the Zacks Consensus Estimate by a cent. Revenue increased 9.6% primarily on the back of volume gains and contributions from acquisitions. Growth in emerging markets as well as margin recovery in Security segment was below expectations.
Management of Stanley Black & Decker is concerned about the security business that is likely to remain weak in Europe in 2013, offsetting slight gains expected from the U.S. housing market related recovery. Besides, continued weakness in the emerging markets is anticipated to pull down growth rates in the Industrial and CDIY segments. Further, the US government shutdown in October will impact the company’s organic growth.
Accounting for all these, the earnings per share guidance has been lowered from $5.40-$5.65 to $4.90-$5.00; organic revenue growth rate now stands at 3% versus 4%-5% expected earlier, and free cash flow guidance has been lowered to $800 million.
The disappointing guidance induced downward revision in earnings estimates for Stanley Black & Decker. In the last 60 days, the Zacks Consensus Estimate for the company has gone down by 8.4% to $4.99 for 2013 and declined by 13.1% to $5.50 for 2014. Also, we have an Earnings ESP of -1.27% for 2014.
Other Stocks to Consider
Stanley Black & Decker currently has $12.7 billion market capitalization. However, companies to watch out for in the industry are NSK Ltd. (NPSKY) and NN Inc. (NNBR), each with a Zacks Rank #1 (Strong Buy) and Norsk Hydro ASA (NHYDY), with a Zacks Rank #2 (Buy).