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We have issued an updated research report on industrial tool maker Stanley Black & Decker, Inc. (NYSE:SWK) on Dec 20. Strengthening tools business as well as expanding product portfolio through meaningful acquisitions will prove beneficial. However, the growth momentum might get restricted by headwinds stemming from rising cost and huge debts, international exposure, industry competition plus global uncertainties.
Stanley Black & Decker carries a Zacks Rank #3 (Hold).
Below we briefly discuss the company’s potential growth drivers and possible challenges.
Factors Favoring Stanley Black & Decker
Strengthening Tools Businesses: We believe Stanley Black & Decker is poised to benefit from its strengthening end markets and growing brand recognition. For Tools & Storage segment, the company anticipates organic revenues to increase in the high-single digit range compared mid-single numbers, expected earlier.
Results will be primarily driven by fortifying construction market in the United States and relatively stable operating conditions in Europe and the emerging markets. Net revenues from DeWalt FlexVolt are anticipated to be approximately $200 million. Also, in the quarters ahead, benefits from Newell Tools and Craftsman acquisitions will boost the segment’s result. By the second half of 2018, the Craftsman products will be available in Lowe’s retail stores.
Inorganic Initiatives Drive Growth Opportunities: Acquired assets have over time contributed to Stanley Black & Decker’s expansion. In the first nine months of 2017, the company’s business acquisitions (net of cash) amounted to $2,582 million. In this regard, the buyouts of the tools business of Newell Brands known as Newell Tools as well as Craftsman tool brand from Sears Holdings are worth mentioning. These takeovers were completed in March 2017.
The company anticipates Newell Brands to strengthen its tools business through deeper penetration into markets worldwide while the Craftsman brand will likely complement its global tools and storage brands as well as open new business opportunities, especially in the lawn and garden end-markets.
Also, divestment of non-core businesses has proven beneficial over time. In February, the company sold a majority portion of its Mechanical Security businesses to dormakaba.
Shareholders’ Return: Stanley Black & Decker has a solid history of returning value to its shareholders. The company paid cash dividends of approximately $267.9 million and repurchased common shares worth $16.2 million for treasury in the first nine months of 2017. Notably, the quarterly rate was hiked by 8.6% in July this year.
In the years ahead, the company wishes to follow its 50/50 capital allocation strategy of acquisitions as well as reward shareholders. Dividend payout is predicted to be 30-35% in the long run.
We believe anticipated growth in earnings, a solid cash flow and a favorable payout ratio will ensure healthy dividend payments by the company going forward.
Healthy ’17 Guidance & Long-Term Targets: Stanley Black & Decker anticipates improving organic revenues (predicted to grow 6% year over year), operational excellence and synergistic benefits from acquired assets to be gainful in 2017. Banking on these aspects, the company has increased its earnings forecast to $7.33-$7.43 per share from the previous projection of $7.18-$7.38. The revised guidance represents year-over-year growth of 13-14%.
By 2022, Stanley Black & Decker aims at generating revenues of approximately $22 billion while revenue rise is predicted at 10-12% (CAGR) range including organic sales growth of 4-6% and acquisition revenues of roughly $6-$8 million. Earnings per share are forecast to grow 10-12% or roughly 6-8%, excluding buyouts. Healthy segmental performance is anticipated with Industrial revenues of $5-$6 billion, Tools & Storage revenues of $12-$14 billion and Security revenues in the $3-$4 billion range.
Over the last six months, shares of Stanley Black & Decker have yielded 18.9% return, outperforming the gain of 15.8% recorded by the industry it belongs to.
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