Stanley Black & Decker, Inc. SWK can be deemed as an attractive investment option in the industrial tools and related services space. It has solid fundamental strength and healthy earnings growth opportunities. The company presently sports a Zacks Rank #1 (Strong Buy).
Based in New Britain, CT, Stanley Black & Decker has a $28.8-billion market capitalization. It belongs to the Zacks Manufacturing - Tools & Related Products industry, which comes under the ambit of the Zacks Industrial Products sector. Worth noting here is that the industry is currently in the top 50% (with a rank of 127) of more than 250 Zacks industries.
In the past year, the company’s shares have gained 7% compared with the industry’s decline of 10%.
Below we have discussed why it is prudent to invest in Stanley Black now.
Tailwinds: The company is well poised to gain from solid product offerings — including power and hand tools, electronic security solutions and healthcare solutions. Also, its focus on product innovation, maintaining a healthy supply chain, address financial stress through cost-saving actions, and favorable e-commerce trend will likely be beneficial.
The company’s cost-actions taken in April 2020 are anticipated to yield $500 million benefits in 2020 and $125 million in 2021. Also, the company believes that cost measures taken in October 2019 will likely yield $180 million savings in 2020.
Scenario Planning Assumptions: Stanley Black increased organic sales growth (year over year) assumption from the earlier 3-5% to 10% for the fourth quarter of 2020. This hike is driven by solid demand for the Industrial segment’s Attachment Tools and Engineered Fastening businesses as well as strength in retail POS and growth in the emerging market, Europe and North America businesses for the Tools & Storage segment.
Also, the company anticipates dollar growth (year over year) in operating margin to be 7-9% for 2020. This is higher than expectation of mid-single-digit growth predicted earlier. Free cash flow is expected to be more than $1 billion in 2020, up from $800-$900 million stated earlier.
Buyouts: Over time, the company has expanded its market reach and geographical presence through acquisitions. It added Consolidated Aerospace Manufacturing to its portfolio in February 2020. Also, it reserves the right to buy an 80% stake in MTD Holdings. Notably, a 20% stake in MTD Holdings was acquired by Stanley Black in January 2019.
Notably, the company’s sales increased 2% on the back of buyouts in the third quarter of 2020.
Payout to Shareholders: Stanley Black believes in rewarding shareholders handsomely — the preferred mode being through dividend payouts. It paid dividends totaling $109.6 million in the third quarter of 2020. This disbursement reflects year-over-year growth of 7.1%.
The company’s quarterly cash dividend rate is presently pegged at 70 cents. Notably, the rate was hiked by one cent or 1.4% in July 2020.
Earnings Estimate Trend: In the past 60 days, the company’s earnings estimates have been increased and suggest positive sentiments toward the stock. Notably, the Zacks Consensus Estimate for Stanley Black’s earnings is pegged at $8.69 for 2020 and $9.65 for 2021, reflecting growth of 9.2% and 4.6% from the 60-day-ago numbers.
Stanley Black & Decker, Inc. Price and Consensus
Stanley Black & Decker, Inc. price-consensus-chart | Stanley Black & Decker, Inc. Quote
Also, estimates for the fourth quarter of 2020 grew 18.1% to $2.94 in the past 60 days. Six upward revision revisions in estimates were recorded for the fourth quarter, nine for 2020 and eight for 2021. Notably, there was one downward revision for 2021.
Other Key Picks
Some other top-ranked stocks in the sector are EnPro Industries, Inc. NPO, Dover Corporation DOV and Graco Inc. GGG. While EnPro Industries currently sports a Zacks Rank #1, both Dover and Graco carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for EnPro Industries and Dover improved for the current year while remained stable for Graco. Further, earnings surprise for the last reported quarter was 109.38% for EnPro, 22.14% for Dover and 40.48% for Graco.
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