Stanley Black & Decker, Inc. SWK may interest investors that seek to gain exposure in the manufacturing industries. Its strong fundamentals and healthy growth opportunities are its attractive points and back its current Zacks Rank #1 (Strong Buy). Also, upwardly revised earnings estimates reflect prevailing bullish sentiments.
The company is based in New Britain, CT, and has a market capitalization of $25.4 billion. It belongs to the Zacks Manufacturing – Tools & Related Products industry, which is part of the broader Zacks Industrial Products sector. The industry is in the top 20% (with rank of 51) of more than 250 Zacks industries.
In the past three months, the company’s shares gained 25.2% compared with the industry’s growth of 1.2%.
Below we have discussed why it is prudent to invest in Stanley Black now.
Top-Line Tailwinds: The company’s presence in multiple end markets — including general industrial, aerospace, defense, construction, automotive and others — has been benefiting it over time.
In addition, the company’s solid product offerings, innovation capabilities and favorable e-commerce trends are poised to benefit in the quarters ahead. Also, growing preferences for security and health-related products as well as those supporting do-it-yourself culture might aid.
In the second half of 2020, Stanley Black expects to benefit from investments in the Tools & Storage, and Security segments.
Liquidity: The company’s liquidity position places it well to deal with the financial obligations, especially in the present difficult environment caused by the pandemic. Its cash balance was $859.8 million at the end of second-quarter 2020, while available liquidity under its commercial paper program was $2.3 billion.
In the quarters ahead, the company believes that restrictions on capital expenditure as well as the temporary halting of acquisitions and share buyback activities will help it preserve capital.
Buyouts: It believes in gaining market share, enhancing product lines and boosting growth opportunities through acquisitions. It bought a 20% stake in MTD Products in January 2019. Further, Stanley Black has an option to buy another 80% stake in MTD Products in 2022. The purchase is anticipated to generate $3-$4 billion in annual revenues beginning in 2022. In addition, Stanley Black acquired IES Attachments (March 2019) and Consolidated Aerospace Manufacturing (February 2020).
In addition to buyouts, the company divested its Sargent & Greenleaf business (then belonging to the Security segment) in May 2019. This action was done in the best interest of shareholders.
It is worth mentioning here that acquisitions boosted Stanley Black’s sales growth by 2% in second-quarter 2020.
Other Tailwinds: In the pandemic period, the company is committed toward providing services to customers, the safety of its workers and maintaining a healthy supply chain. Also, cost-reduction measures are being taken to tackle the financial pressure.
The cost-savings measures taken in April 2020 are anticipated to yield $1 billion in savings — including $500 million in 2020. In addition, $180 million in cost savings are expected to be realized in 2020 from measures taken in October 2019.
Rewards to Shareholders: The company is committed toward rewarding shareholders handsomely through dividend payments. In the first half of 2020, it paid out dividends of $211.4 million, higher than $195.3 million in the first half of 2019.
It is worth mentioning here that the company announced a 1.4% (or one cent per share) increase in its quarterly dividend rate in July 2020. We believe that a healthy cash flow position will help the company in rewarding shareholders going forward.
Earnings Estimate Trend: Stanley Black’s earnings estimates have been revised upward in the past 30 days. Currently, the Zacks Consensus Estimate for its earnings is pegged at $7.00 for 2020, reflecting growth of 10.7% from the 30-day-ago figure. The same for 2021 has increased 7.7% to $8.36 during the same period.
It is worth noting here that seven upward revisions have been recorded for both 2020 and 2021 in the past 30 days. Also, two downward revisions were recorded for 2020 and one downward for 2021.
Stanley Black Decker, Inc. Price and Consensus
Stanley Black Decker, Inc. price-consensus-chart | Stanley Black Decker, Inc. Quote
Also, the consensus estimate for the third quarter of 2020 is pegged at $2.20, reflecting growth from $1.90 in the past 30 days. On a year-over-year basis, estimates for the quarter suggest a rise of 3.3% from the year-ago reported figure.
Other Key Picks
Three other top-ranked stocks in the sector are Chart Industries, Inc. GTLS, Tennant Company TNC and Graco Inc. GGG. While both Chart Industries and Tennant currently sport a Zacks Rank #1, Graco carries 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 these companies have improved for the current year. Further, earnings surprise for the last reported quarter was 46.51% for Chart Industries, 380.00% for Tennant and 37.04% for Graco.
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