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Snap-on Shares on an Uptrend: A Glance at Growth Drivers

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Shares of diagnostics systems and software supplier, Snap-on Incorporated (SNA - Free Report) had a solid run in the recent past. In the past three months, Snap-on’s shares have recorded an average return of 17%, outperforming the Zacks categorized Other Consumer Discretionary industry average return of just 2.5%.

Further, the company’s earnings estimates moved north in the past couple of months. Analysts have become increasingly bullish on the stock, as they have revised the Zacks Consensus Estimate for fiscal 2016 earnings upward in the past 60 days, from $9.06 to $9.11 per share.

Also, the company has an extraordinary earnings surprise streak. Snap-on has consistently outperformed earnings estimates every quarter for the past seven years, which is an astounding feat. Over the trailing four quarters, the company registered an average surprise of 4.1%, beating estimates all through.

In its recently reported third-quarter 2016 results, Snap-on’s earnings surpassed the Zacks Consensus Estimate by 3.3% and grew 12.1% year over year. Strong organic top-line growth and improved operating cost efficiency drove earnings growth.

Snap-on’s successful earnings streak reflects its consistent capability to leverage on market opportunities for augmenting growth. The company continues to make significant efforts toward improving its operating efficiency through Snap-on Value Creation Processes.

Currently, Snap-On’s long-term growth strategy focuses on three critical areas, namely enhancing the franchise network, expanding footprint in vehicle repair garage & vital industries and penetrating emerging markets. The company is also dedicated toward its rapid continuous improvement (“RCI”) program.

The RCI processes are designed to enhance organizational effectiveness and minimize costs, and have helped Snap-On boost sales, margins and generate savings. It also includes transformation of the company’s global manufacturing and supply chain into a market-demand-based and lower-cost replenishment system. This program has yielded tangible results. During the third quarter, Snap-On’s value creation process resulted in 2.6% organic sales growth, 18.9% improvement in optical operating margin and 12.1% increase in earnings per share.

Snap-on is witnessing encouraging prospects in most of its business lines that signal brighter prospects, going forward. The Repair Systems & Information segment has been gaining traction on the back of factors like rising penetration in emerging markets, persistent software and hardware upgrades and productivity enhancements. The Snap-on Tools Group is also witnessing robust momentum.

In October, the company decided to purchase Sweden-based firm – Car-O-Liner – to reinforce its Repair Systems & Information Group position, and fortify its footprint in the auto and heavy duty markets. The company expects that this acquisition and favorable industry trends to strengthen its relationship with repair shop owners and managers.

Close on the heels of that announcement, Snap-on acquired torque wrench marker – Sturtevant Richmont — which is engaged in designing, manufacturing and distributing mechanical and electronic torque wrenches. Snap-On believes that this strategic buyout will improve its critical mechanical performance by addressing critical torque requirements.

SNAP-ON INC Price and Consensus

These strategic acquisitions will bolster the company’s core businesses in key markets. However, currency fluctuations and other macroeconomic issues can continue to be a drag on its financials. In addition, the ongoing softness in industrial markets, which are affecting client spending, may thwart the growth momentum at Snap-on to some extent.

However, with bullish prospects in most of its business lines, we believe that this Zacks Rank #2 (Buy) company has strong upside potential in the near future.

Stocks to Consider

Some other favorably placed stocks in the sector include Capella Education Co. , Intrawest Resorts Holdings, Inc. (SNOW - Free Report) and Harman International Industries, Incorporated , each holding the same Zacks Rank as Snap-On. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Headquartered in Minneapolis, MN, Capella Education, through its wholly owned subsidiaries, provides online post-secondary education services in the U.S, focused primarily on working adults. The company has an excellent earnings surprise history, beating estimates all through over the trailing four quarters. It boasts an average positive surprise of 10.9%.

Intrawest Resorts Holdings operates as a mountain resort and adventure company which delivers vacation and travel experiences to its customers. The company managed to beat earnings twice in the trailing four quarters and has an average positive surprise of 2.2%.

Harman International is engaged in developing, manufacturing and marketing audio products and electronic systems. The company has topped estimates thrice in the trailing four quarters, with an average beat of 6.5%.

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