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Neutral on Stanley Black & Decker

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We recently reiterated our Neutral recommendation on industrial tool maker, Stanley Black & Decker Inc. (SWK - Free Report) .
Why Neutral?

Long-term growth prospects seems bright for Stanley Black & Decker as the company is well equipped to leverage benefits from the increase in industrial tools demand globally as well as from the rising exposure to emerging markets.
The mid-decade goal of Stanley Black & Decker includes achieving $15 billion in sales, operating margin greater than 15%, deriving over 20% revenues from emerging markets, generating 15% return on capital/investment and 10 working capital turns.

The company is working hard to expand its organic growth and has implemented six strategic initiatives towards this end. These six initiatives are likely to contribute between $800 to $900 million of annualized revenue growth and $200 million in operating income in a 3 year term, with $150 million in 2013 and $350 million each in 2014 and 2015.

In addition to these long-term aspects, Stanley Black & Decker’s recently reported second quarter 2013 results were impressive. Earnings per share in the quarter grew 7.1% year over year and surpassed the Zacks Consensus Estimate by 1.7%. Revenues grew 11.8% on the back of solid organic revenue growth and contributions from acquisitions. For 2013, management raised its organic revenue growth guidance expecting higher core business growth and benefits from organic growth initiatives. Higher margins are also likely.

Also to reward its shareholders, board of directors of Stanley Black & Decker approved a 2% or one cent increase in the company’s quarterly dividend rate, which now stands at 50 cents.

However, near-term concerns including higher negative foreign currency translation impact, likely to be 20 cents on 2013 earnings, and headwinds from higher interest and tax rates which cannot be ignored.

Considering all these, we prefer remaining on the sidelines for Stanley Black & Decker currently.
Other Stocks in the Industry

Other companies that are worth mentioning in the industry NN Inc (NNBR - Free Report) — with a Zacks Rank #1 (Strong Buy), Proto Labs, Inc. (PRLB - Free Report) — with a Zacks Rank #2 (Buy) and Lincoln Electric Holdings Inc. (LECO - Free Report) .

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