Stanley Black & Decker, Inc. SWK may interest investors that seek to gain exposure in the manufacturing tools industry. Its strong fundamentals and healthy growth opportunities are its compelling points. Also, its upwardly revised earnings estimates point toward the prevailing bullish sentiments for the stock. The company currently sports a Zacks Rank #1 (Strong Buy).
It is based in New Britain, CT, and has a market capitalization of $28.4 billion. The company 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 32% (with a rank of 79) of more than 250 Zacks industries.
In the past six months, the company’s shares gained 66.3% compared with the industry’s growth of 32%. During the same period, the S&P 500 grew 24.6% and the sector expanded 45.7%.
Below we have discussed why it is prudent to invest in Stanley Black now.
Multiple Tailwinds: The company’s focus on innovating products, ensuring the safety of workers and the satisfaction of customers, and maintaining a healthy supply chain is likely to prove beneficial in the quarters ahead. Also, a favorable trend in the e-commerce front and a hike in demand for security and health-related products along with growing preferences for do-it-yourself products are boons.
In addition, a healthy liquidity position — including $2.3 billion from the commercial paper program and $0.9 billion of cash on hand — ensures that the company is able to deal with the prevailing financial situation. Its cost-reduction actions introduced in April 2020 are expected to yield savings of $500 in 2020, while other actions (started in October 2019) are anticipated to save $180 million in costs in 2020.
Buyouts: The company believes in enhancing product lines, expanding market share and boosting growth opportunities through acquisitions. It is worth mentioning here that acquisitions contributed 2% to its net sales in the second quarter of 2020.
It is worth mentioning here that Stanley Black acquired Consolidated Aerospace Manufacturing in February 2020. Now part of the company’s Industrial segment, the acquired asset has been strengthening the engineered fastening business.
Also, an option to purchase an 80% stake in MTD Holdings is reserved with Stanley Black. Notably, the company bought a 20% stake in MTD Holdings in January 2019. It might consider exercising its option in 2022 and expected the move to generate incremental annual revenues of $3-$4 billion, beginning in 2022.
Rewards to Shareholders: The company is committed to rewarding shareholders handsomely through dividend payments and share buybacks. Though it continues to pay out dividends in the pandemic-stricken environment, it temporarily suspended its share-buyback activities.
Notably, the company paid out dividends totaling $105.8 million in the second quarter of 2020. This represented an increase of 8.3% from the comparable quarter a year ago. Its quarterly dividend rate was hiked by 1.4% in July 2020 and is presently at 70 cents per share. Exiting the second quarter of 2020, the company was left to repurchase 11.5 million shares under a previously approved buyback program. We believe that a healthy cash flow position will help it reward shareholders, going forward.
Earnings Estimate Trend: Stanley Black’s earnings estimates have been revised upward in the past 60 days. Currently, the Zacks Consensus Estimate for its earnings is pegged at $7.82 for 2020, reflecting growth of 13% from the 60-day-ago figure. The same for 2021 has increased 9.7% to $9.07 during the same period.
It is worth noting here that ten upward revisions have been recorded for both 2020 and 2021 in the past 60 days. There was no downward revision for both the years.
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 $2.64, reflecting growth from $2.15 per share in the past 60 days. The revision came on the back of eight upward revisions versus none downward.
Other Key Picks
Some other top-ranked stocks in the sector are Kaman Corporation KAMN, Kennametal Inc. KMT and Lincoln Electric Holdings, Inc. LECO. While Kaman currently sports a Zacks Rank #1, both Kennametal and Lincoln Electric 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 these stocks have improved for the current year. Further, earnings surprise for the last reported quarter was 71.43% for Kaman, 25% for Kennametal and 135.29% for Lincoln Electric.
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