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We recently maintained an Underperform recommendation on industrial tool maker, Stanley Black & Decker, Inc. (SWK - Analyst Report).

Of late, the company made a number of strategic moves; of which divestment of Hardware & Home Improvement Group and the acquisition of Infastech are of considerable importance. The long-term opportunities from HHI were found inconsistent with the objectives of the whole company. Resources out of this business sale, roughly $1.3 billion, will be used for share repurchases, debt repayments and for reinvestment in suitable acquisitions.

Besides the strategic decision of HHI selling, the company also agreed to acquire Hong Kong based leading manufacturer and supplier of specialty engineered fastening technologies, Infastech. The acquisition is likely to enhance Stanley’s revenue generation capacity, especially in the Asia-Pacific region.

Notwithstanding these positives, certain concerns have made us maintain an Underperform recommendation on the stock.

Stanley Black & Decker’s third quarter results disappoint us as the company’s earnings, although grew 5.3% year over year, fell short of our estimate of $0.05 per share. Revenue grew largely on the back of benefits from acquisitions, while currency translation still continued to play a negative role. Organic revenue growth was flat as European operations still underperformed and are expected to remain a drag in the quarter ahead. Management also revised down its guidance for 2012 owing to these factors.

The current Zacks Consensus Estimate for the fourth quarter of 2012 is $1.45, representing a year-over-year increase of 6.4%. Estimates for years 2012 and 2013 are $5.26 and $6.03, reflecting annual growth of 0.3% and 14.7%, respectively.

Stanley Black & Decker manufactures tools and engineered security solutions across the globe. The stock currently bears a Zacks #5 (Strong Sell) Rank while its prime competitors Danaher Corp. (DHR - Analyst Report) has a Zacks #4 (Sell) Rank and Snap-on Inc. (SNA - Analyst Report) has a Zacks #2 (Buy) Rank.  

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