We have issued an updated research report on industrial tool maker, Stanley Black & Decker, Inc. (SWK - Free Report) on Sep 26. We believe that this machinery stock is poised to benefit from solid long-term growth opportunities. The company’s earnings are projected to grow 10.3% in the next three to five years.
In the first half of 2017, the company’s shares yielded 23.8% return. Below we briefly discuss the company’s potential growth drivers.
Diversification Benefits: We believe Stanley Black & Decker is poised to benefit from its diversified customer base in the educational, financial and healthcare institutions as well as in the commercial, governmental and industrial end markets. Its Security segment deals with mechanical and electronic security products as well as a variety of security services. Its Industrial segment manufactures and markets mechanic tools and storage systems, engineered healthcare storage systems, hydraulic tools and accessories, plumbing, heating and air conditioning tools, assembly tools and systems, and specialty tools. Its Tools & Storage segment deals in hand tools, consumer mechanical tools, storage systems, pneumatic tools and fasteners.
Furthermore, international diversity has played a major role in Stanley Black & Decker’s profitability over time. Notably, in second-quarter 2017, it derived nearly 55% of net revenues from its operations in the United States while the rest were secured from Canada, Europe, Emerging markets, Japan and Australia.
We believe that such diversified business structure makes the company more competitive compared with other major players in the industry like Actuant Corporation , Kennametal Inc. (KMT - Free Report) and Lincoln Electric Holdings, Inc. (LECO - Free Report) .
Inorganic Initiatives: Over the past few months, Stanley Black & Decker has been restructuring its business portfolio. In March 2017, it acquired Newell Tools, the tools business of Newell Brands and the Craftsman tool brand from Sears Holdings. While Newell Tools is anticipated to strengthen the company’s tools business through deeper penetration into markets worldwide, the Craftsman brand will enhance the company’s global tools and storage product offerings and open new business opportunities, especially in the lawn and garden end markets. Additionally, in February, the company sold a majority portion of its Mechanical Security businesses to dormakaba. The estimated after-tax cash proceeds of approximately $700 million from the deal can be utilized for boosting more attractive businesses in the company’s portfolio.
Shareholders’ Return: Share buybacks and dividend payments are the prime means of returning value to shareholders for Stanley Black & Decker. In second-quarter 2017, the company paid cash dividends of approximately $86.5 million and repurchased shares worth $2.1 million. In July, the company announced 8.6% increase in its quarterly dividend rate.
Promising 2017 Guidance & Long-Term Targets: For 2017, Stanley Black & Decker increased its earnings forecast to $7.18-$7.38 per share from the previous projection of $7.08-$7.28. The revision was primarily driven by benefits accrued from better organic sales performance, operational excellence and acquired assets. Also, the revised guidance represents year-over-year growth of 10-13%. Compared with its previous guidance of earnings accretion in the range of 45-55 cents per share, incremental organic revenue growth is likely to contribute additional 10 cents per share to earnings. Revenue generation of approximately $200 million is anticipated from DeWalt FlexVolt in 2017.
By 2022, Stanley Black & Decker aims generating revenues of approximately $22 billion while revenue growth is anticipated to be in a 10-12% (CAGR) range, including organic sales growth of 4-6% and acquisition revenues of roughly $6-$8 million. Earnings per share are predicted to grow 10-12% or roughly 6-8%, excluding acquisitions. Dividend payout is predicted to be 30-35% in the long run.
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