Stanley B&D Remains Underperform - Analyst Blog

We recently maintained an Underperform recommendation on industrial tool maker, Stanley Black & Decker, Inc. (SWK) based on near-term headwinds surrounding the company.

Why Underperform?

Long-term prospects remain bright for industrial tool makers; as demand for tools is expected to surge with the growth in the global economy, though currently we see slow growth across nations.

Considering Stanley Balck & Decker, a number of strategic moves undertaken recently, including divestment of Hardware & Home Improvement Group and the acquisition of Infastech, will work in favour of the company. HHI divestment will free resources and enable the company to utilize them for share repurchases, debt repayments and for reinvestment in suitable acquisitions. Infastech will solidify the company’s revenue generation capabilities in emerging markets.

These positives notwithstanding, it’s the near-term concerns that keep us bearish on the stock. Earnings per share of $1.37 in the fourth quarter surpassed the Zacks Consensus Estimate by just a cent while earnings of $4.67 per share for year 2012 lagged behind the Zacks Consensus Estimate by 5.1%.

Management’s outlook for 2013 was disappointing. For the first quarter 2013, earnings were estimated at 17.5% of full year earnings versus a historical range of 18% -19%. Besides, security and industrial markets in the United States are expected to remain weak in 2013, offsetting slight gains expected from the housing market related recovery.

Additionally, decline in industrial and security markets and flat construction market in Europe are likely to impact the company’s business in the region.  There are apprehensions of headwinds from a higher tax rate and escalating interest expense.

Weak outlook and fourth quarter results pulled down earnings estimate for the stock. In the last 7 days the Zacks Consensus Estimate for 2013 has gone down 4.5% to $5.49 while that for 2014 plummeted 4.2% to $6.36 per share.

Others Stocks to Consider

Other stocks to watch out for in the industry are Sandvik AB (SDVKY), holding a Zacks Rank #1 (Strong Buy) along with MRC Global Inc, (MRC) and Atlas Copco AB (ATLKY), both holding a Zacks Rank #2 (Buy).
 

 (ATLKY): ETF Research Reports

MRC GLOBAL INC (MRC): Free Stock Analysis Report

 (SDVKY): ETF Research Reports

STANLEY B&D INC (SWK): Free Stock Analysis Report

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