Stanley Black & Decker, Inc. SWK seems to have lost its sheen due to challenging market conditions in the wake of the coronavirus outbreak, high leverage and forex woes. Also, weak price performance and lowered earnings estimates indicate bearish sentiments for the stock.
The company has a market capitalization of $17.8 billion and a Zacks Rank #4 (Sell) at present. It belongs to the Zacks Manufacturing – Tools & Related Products industry, currently at the bottom 5% (with the rank of 241) of more than 250 Zacks industries.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We believe that the industry is suffering from global uncertainties, unfavorable movements in foreign currencies, softness in industrial production in the United States and other cost-related headwinds.
Notably, Stanley Black’s earnings surpassed estimates by 0.9% in fourth-quarter 2020, while sales lagged the same by 0.7%.
In the past three months, the company's shares have fallen 37.9% compared with the industry’s decline of 35.7%.
Factors Affecting Investment Appeal
Coronavirus-Related Worries: The company believes that its revenue-generation capabilities are suffering from the adverse impacts of the pandemic. For now, it has withdrawn its previously mentioned projections for 2020 — including adjusted earnings of $8.80-$9.00 per share, organic growth of 3% and free cash flow conversion of 90-100%.
Also, the company has suspended its buyout activities temporarily and intends on lowering its capital expenditure.
In addition, the pandemic has hurt the United States’ industrial production and economic activities badly. In March, the country’s industrial production declined 5.5% year over year, with manufacturing and utilities output falling 6.6% and 5.1%, respectively. We believe that Stanley Black’s overall performances are highly dependent on the economic health and industrial activities of the United States and foreign nations that it serves.
High Debts: High debts increase financial obligations and, in turn, hurt profitability. Stanley Black’s long-term debts were $3,176.4 million at the end of 2019, while its interest expenses represented a 10.1% increase from the previous year. So far in 2020, the company has issued $750-million notes due 2030 and $750 million of debentures maturing in 2060.
Forex Woes: The presence in the United States, Europe, Japan, Canada and emerging markets has exposed Stanley Black to geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies. In fourth-quarter 2019, forex woes affected the company’s sales by 1%.
Persistence of such issues might pose concerns for Stanley Black.
Bottom-Line Estimate Trend: The Zacks Consensus Estimate for Stanley Black’s earnings has been revised downward in the past 60 days. The Zacks Consensus Estimate for earnings per share is currently pegged at $8.04 for 2020 and $9.26 for 2021, reflecting declines of 10% and 4.6% from the respective 60-day-ago figures. Notably, five downward revisions were recorded for 2020 earnings and four for 2021 in the past 60 days. There were no upward revisions in the same timeframe.
Stanley Black & Decker, Inc. Price and Consensus
Stanley Black & Decker, Inc. price-consensus-chart | Stanley Black & Decker, Inc. Quote
Also, earnings estimates of $1.19 for first-quarter 2020 suggest a decline of 6.3% from the 60-day-ago figure.
Stanley Black’s Performance Versus Industry Peers
The company has underperformed three industry peers in the past three months. Three such stocks are Lincoln Electric Holdings, Inc. LECO, Enerpac Tool Group Corp. EPAC and Sandvik AB SDVKY, with respective three-month declines of 24.6%, 36.9% and 32.9%.
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Lincoln Electric Holdings, Inc. (LECO) : Free Stock Analysis Report
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