Industrial tool maker Stanley Black & Decker, Inc. (SWK - Analyst Report) recently announced that it has agreed to acquire the tools business of Newell Brands, known as Newell Tools. The transaction has been valued at approximately $1.95 billion, to be paid in cash.
As revealed, Newell Tools comprise highly popular industrial cutting, hand tool and power tool accessory brands Irwin and Lenox as well as their associated power tool accessory and hand tool products. Also, Newell Tools has strong manufacturing capabilities, distribution network and highly skilled workforce of roughly 2,500 employees. Financial performance of Newell Tools has been impressive, with approximately $760 million generated in the trailing twelve months. Since 2011, the business’ sales growth averaged in a low-to mid-single digit range.
Regarding the financial aspect of the agreement, Stanley Black & Decker will likely fund the transaction through available cash and debt. Also, the company will likely incur restructuring and other deal related charges of $125−$140 million as well as inventory step-up charges of $40 million in two subsequent years of completion of the transaction.
Pending regulatory and other approvals, Stanley Black & Decker anticipates to close the transaction in first-half 2017.
We believe such inorganic ways of strengthening its business will allow Stanley Black & Decker to offer better and innovative products to customers in various operating regions. A diverse portfolio and product mix, along with new business wins, should help Stanley Black & Decker deliver solid results in the quarters ahead.
The Newell Tools acquisition will strengthen Stanley Black & Decker’s tools business through deeper penetration into markets worldwide. Also, the acquired assets will add incremental earnings of 15 cents per share in year one after the closing of the transaction, while this will likely increase to 50 cents per share by year three. Also, the acquisition is expected to yield annual cost synergies of approximately $80–$90 million by year three.
Shares of Stanley Black & Decker have gained roughly 2.88% at the end of the trading session on Oct 12, 2016. We believe the agreement might be prime driving force behind the rise.
Zacks Rank & Other Stocks to Consider
Stanley Black & Decker, with $18.2 billion in market capitalization, has strong fundamentals, supporting growth. The stock currently carries a Zacks Rank #2 (Buy).
Other favorably ranked stocks in the machinery industry include Nordson Corporation (NDSN - Snapshot Report) , Barnes Group (B - Snapshot Report) and Altra Industrial Motion Corp (AIMC - Analyst Report) . While Nordson Corporation sports a Zacks Rank #1 (Strong Buy), both Barnes Group and Altra Industrial Motion carry the same Zacks Rank as Stanley Black & Decker. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nordson Corporation’s financial performance has been impressive, with an average positive earnings surprise of 9.13% for the last four quarters. Also, earnings estimates for fiscal 2016 and fiscal 2017 have been revised upward over the last 60 days.
Barnes Group reported better-than-expected results in the last quarter, with a positive earnings surprise of 6.78%. Also, bottom-line expectations for 2017 have improved over the past 60 days.
Altra Industrial Motion has a solid earnings surprise history, with an average of 9.20% for the last four quarters.
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