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Reasons Why Investors Should Avoid Stanley Black & Decker Now

Zacks Equity Research

Stanley Black & Decker, Inc. SWK seems to have lost its sheen due to weakness in emerging and industrial markets, forex woes, tariffs, inflation, and other company-specific headwinds.

The industrial tool maker, with a market capitalization of approximately $24 billion, currently carries a Zacks Rank #4 (Sell).

The company belongs to the Zacks Manufacturing – Tools & Related Products industry, which is at the bottom 2% (with the rank of 247) of more than 250 Zacks industries. We believe that the industry is suffering from adverse impacts of global uncertainties, unfavorable movements in foreign currencies, weakness in industrial production in the United States, and escalation in expenses due to rise in tariffs, commodity inflation, high labor costs and freight charges.

Notably, Stanley Black & Decker’s third-quarter 2019 results were better than expected, with earnings surpassing estimates by 5.4%. However, the bottom line suffered from adverse impacts of external headwinds.

Over the past month, the company has gained 7.1% compared with the industry’s growth of 8.9%.



Factors Hurting the Stock

Weakness in Industrial Segment: Correlation of Stanley Black & Decker's segmental performances with that of international economic conditions, and the United States’ industrial activities and housing market is worrying.

The company believes that weakness in automotive and general industrial markets might impact the performance of its Industrial segment in 2019. Organic sales are predicted to decline in a low-single digit on a year-over-year basis for Industrial. Its margin is estimated to be down year over year due to external headwinds and lower volume.
 
External Headwinds: Stanley Black & Decker is currently dealing with adverse impacts of external headwinds — including tariffs, unfavorable movements in foreign currencies and commodity inflation. In third-quarter 2019, forex woes adversely impacted sales by 2%. In the same period, rise in tariffs and forex woes inflated its cost of sales.

The company predicts that adverse impacts of tariffs, foreign currency woes and commodity inflation will affect results by $445 million in 2019, higher than previously mentioned $390 million.

Poor Projections: For 2019, Stanley Black & Decker is wary about global factors weakening emerging and industrial markets. It predicts organic sales growth of 3.5-4% for the year, lower than 4% mentioned earlier. Also, the company has lowered its earnings guidance to $8.35-$8.45 per share from the previously stated $8.50-$8.70 mainly on charges associated with the new cost-reduction program.

Over the past 30 days, the Zacks Consensus Estimate for Stanley Black & Decker’s earnings has declined 1.6% to $8.42 for 2019 and has moved down 3.1% to $9.04 for 2020. This reflects bearish sentiments.

Stanley Black & Decker, Inc. Price and Consensus

 

Stanley Black & Decker, Inc. Price and Consensus

Stanley Black & Decker, Inc. price-consensus-chart | Stanley Black & Decker, Inc. Quote

Highly-Leveraged Balance Sheet: High debts can be concerning for the company as it raises financial obligations and might adversely impact profitability. Stanley Black & Decker sometimes raises funds through the issuance of long-term debt instruments and equities.

The company’s long-term debt rose 35.1% year over year in 2018. Since then, an increase of 2.3% was recorded, with debt coming in at $3,908.8 million at the end of third-quarter 2019.

Stocks That Warrant a Look

Some better-ranked stocks in the Zacks Industrial Products sector are Tennant Company TNC, Dover Corporation DOV and Lakeland Industries, Inc LAKE. While Tennant currently sports a Zacks Rank #1 (Strong Buy), Dover and Lakeland 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 Tennant and Dover improved for the current year while remained unchanged for Lakeland. Further, positive earnings surprises for the last reported quarter were 40% for Tennant, 4.58% for Dover and 1,600% for Lakeland.

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