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Will Stanley Black & Decker Sustain Momentum Amid Risks?

Zacks Equity Research

Stanley Black & Decker, Inc. SWK has impressed investors with its recent earnings streak, having beaten estimates thrice in the four trailing quarters.

In the past six months, the stock has gained 5.3%, outperforming the industry’s growth of 4.9%. The company’s share price increase reflects investor optimism about the stock.

We believe that the company’s notable traction across markets will drive growth in the upcoming quarters.

Factors to Consider

Stanley Black & Decker is well poised to gain from strengthening foothold in emerging markets, favorable e-commerce trend, efforts to innovate products and growing recognition for Craftsman, Lenox, Irwin, and DeWalt FlexVolt products. Notably, for 2019, the company anticipates generating organic sales growth of about 4%. Supported by healthy sales growth, cost-saving actions and lower share count, adjusted earnings are predicted to be $8.45-$8.65 per share. This projection reflects growth of 4-6% from the year-ago reported figure.

Moreover, the company’s market expansion strategies are expected to act as key growth drivers, going forward. In this regard, in March 2017, brands like Lenox and Irwin were acquired as part of Newell Tools, while Craftsman branded products were also added to the company’s portfolio. Newell Tools has been strengthening the company’s tools business through deeper penetration into markets worldwide and the addition of two prime tool brands. In addition, the buyout of industrial business of Nelson Fastener Systems (April 2018) has been strengthening its Engineered Fastening business, and will be accretive to earnings.

However, the company is currently dealing with adverse impact of rising cost of sales. In the first quarter of 2019, its cost of sales increased 8.8% year over year primarily due to commodity inflation, unfavorable impact of foreign currency movements and tariffs. If unchecked, rising costs and expenses can hurt its margins in the quarters ahead.

For 2019, the company expects adverse impacts of tariffs, foreign currency woes and commodity inflation to adversely impact results by $340 million.

Zacks Rank & Stocks to Consider

Stanley Black & Decker currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from Zacks Industrial Products sector are Chart Industries, Inc. GTLS, Terex Corporation TEX and Actuant Corporation ATU. While Chart Industries sports a Zacks Rank #1 (Strong Buy), Terex and Actuant carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chart Industries exceeded estimates thrice in the preceding four quarters, the average positive earnings surprise being 16.56%.

Terex surpassed estimates thrice in the trailing four quarters, the average positive earnings surprise being 15.77%.

Actuant exceeded estimates in each of the preceding four quarters, the average positive earnings surprise being 11.01%.

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