Here's Why Investors Should Hold on to Snap-on (SNA) Stock Now
Snap-on Incorporated SNA has been gaining from robust organic sales growth and continued positive business momentum. Management is on track with its Value Creation model.
The company is working on its Rapid Continuous Improvement process and other cost-reduction initiatives. The RCI process is designed to enhance organizational effectiveness and minimize costs, beside helping Snap-on boost sales and margins, and generate savings. Savings from the RCI initiative reflect gains from continuous productivity and process improvement plans.
Management intends to boost customer services, and enhance manufacturing and supply-chain capabilities through the RCI initiatives and further investments.
Snap-on’s ability to innovate bodes well. The company has been investing in new products and increasing brand awareness across the world.
Its robust business model helps in enhancing the value-creation processes, which improves safety, quality of service, customer satisfaction and innovation. The company’s growth strategy focuses on three critical areas, namely enhancing the franchise network, improving relationships with repair shop owners and managers, and expanding critical industries in emerging markets.
Driven by these factors, Snap-on has been witnessing a robust surprise trend, which continued in third-quarter 2022. Its top and bottom lines beat the Zacks Consensus Estimate, marking the ninth straight earnings beat and the 10th consecutive sales surprise. Earnings and sales improved year over year. Adjusted earnings of $4.14 per share improved 16% from earnings of $3.57 reported in the prior-year quarter. Net sales grew 6.2% to $1,102.5 million, driven by organic sales growth of 10.4%.
Higher sales volume and gains from the RCI initiatives boosted margins in the third quarter. The company’s operating earnings before financial services totaled $223.5 million, up 11% year over year. As a percentage of sales, operating earnings before financial services expanded 90 bps to 20.3% in the third quarter. Consolidated operating earnings (including financial services) were $289.9 million, up 6.6% year over year. As a percentage of sales, operating earnings expanded 20 bps to 24.4%.
This Zacks Rank #3 (Hold) stock has gained 18.4% in the past three months compared with the industry’s growth of 20.3%.
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However, the company continues to reel under potential threats of new COVID-19 variants and supply-chain headwinds. Rising cost inflation, stemming from higher raw material expenses and increased transportation costs, is likely to be a deterrent.
Also, the unfavorable currency is concerning. In third-quarter 2022, the company’s sales were affected by an unfavorable foreign currency of $39.1 million. Sales in the Commercial & Industrial Group, Tools Group, and Repair Systems & Information Group segments included $20.8 million, $8.9 million and $11.2 million of unfavorable foreign currency, respectively.
Snap-on’s cost-cutting efforts, RCI plan and solid business momentum are likely to help sustain its momentum and offset inflation and currency woes.
The Zacks Consensus Estimate for Snap-on’s 2022 sales and EPS suggests growth of 5.6% and 10.5%, respectively, from the year-ago period’s reported numbers. Topping it, a long-term earnings growth rate of 6.9% reflects its inherent strength.
Stocks to Consider
Some better-ranked stocks in the Zacks Consumer Discretionary sector are Hilton Grand Vacations HGV, World Wrestling Entertainment WWE and Hyatt Hotels H.
World Wrestling Entertainment currently sports a Zacks Rank #1 (Strong Buy). WWE has a trailing four-quarter earnings surprise of 25.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for WWE’s 2023 sales and earnings per share (EPS) indicates a rise of 4.9% and 10.7%, respectively, from the year-ago period’s estimated levels.
Hilton Grand Vacations currently sports a Zacks Rank #2 (Buy). HGV has a trailing four-quarter earnings surprise of 3.7%, on average.
The Zacks Consensus Estimate for HGV’s 2023 sales and earnings per share (EPS) indicates increases of 4.7% and 24.6%, respectively, from the year-ago period’s reported levels.
Hyatt currently has a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average.
The Zacks Consensus Estimate for H’s 2023 sales and EPS indicates increases of 7.4% and 136.6%, respectively, from the year-ago period’s reported levels.
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