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Stanley Black (SWK) to Gain From Solid Demand, Costs Increase

Stanley Black (SWK) is poised to benefit from solid demand, surge in e-commerce business and acquired assets. Cost inflation and transit woes are like...

This story originally appeared on Zacks

Stanley Black & Decker, Inc. SWK engages in manufacturing and supplying power and hand tools. Its other offerings include electronic security solutions, healthcare solutions and engineered fastening systems. It presently has a $31.6-billion market capitalization and is based in New Britain, CT.

Stanley Black belongs to the Zacks Manufacturing - Tools & Related Products industry, which comes under the ambit of the Zacks Industrial Products sector. The industry is in the top 20% (with the rank of 50) of more than 250 Zacks industries. The company presently carries a Zacks Rank #3 (Hold).

Year to date, the company’s shares have gained 8.6% against the industry’s decline of 1.3%.

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There are a number of factors that are influencing Stanley Black’s prospects. A brief discussion on important factors and earnings estimates is given below:

Financial Performance and Projections: Stanley Black posted impressive results in the last four quarters, having beaten estimates on all occasions. In the last reported quarter, the company’s earnings exceeded the Zacks Consensus Estimate by 6.57%. On a year-over-year basis, the bottom line expanded 92.5% on the back of 36.6% growth in revenues and margin improvements.

In the quarters ahead, Stanley Black is poised to gain from its solid product offerings and improving market conditions. E-commerce business is healthy and demand for electrification, home & garden, and health and safety products is impressive. Cost-saving actions and growth investments are advantageous as well.

Stanley Black anticipates adjusted earnings to be $11.35-$11.65 per share for 2021, reflecting an upward revision from the prior projection of $10.70-$11.00. Organic sales are predicted to grow 16-18% year over year compared with 11-13% stated previously. On a segmental basis, the company expects organic sales growth to be in the low-20% for the Tools & Storage segment and in the high-single digits for the Security segment.

Capital Allocation: The company effectively uses its capital for rewarding shareholders and boosting prospects. In second-quarter 2021, the company paid out dividends of $111.6 million and repurchased shares worth $2.4 million. The company hiked the quarterly dividend rate by 13% in July 2021.

Also, buyout activities are favored by Stanley Black to boost its prospects. In second-quarter 2021, acquisitions increased the company’s sales by 1%. Recently, the company announced that it will purchase the remaining 80% stake in MTD Holdings Inc., having bought 20% interest in February 2019. The MTD Holdings buyout is anticipated to boost the company’s earnings by 50 cents in 2022.

Industrial Segment Woes: Accounting for second-quarter results and moderation for oil & gas business’ assumptions, Stanley Black lowered its organic sales growth prediction to the low to mid-single-digit range from the previously mentioned 4-6% increase.

Cost Woes: The company suffered from commodity inflation and other cost-related headwinds in second-quarter 2021. Its cost of sales, and selling, general and administrative expenses expanded 31.7% and 34.5% from the year-ago quarter, respectively. The company expects cost inflation-related woes to affect results by $260 million (higher than $210 million expected earlier) in second-half 2021 and $300 million (versus $235 million mentioned previously) in 2021. Transit costs in the Tools & Storage segments as well as commodity inflation are main reasons for cost inflation.

High Debts & Peers: Huge debts and the related financial obligations are concerning for Stanley Black. Exiting second-quarter 2021, the company’s long-term debts were $4,246.2 million. Also, the company’s debt-to-equity of 41.1% is higher than the industry’s 39.8%.

Three peer companies are Lincoln Electric Holdings, Inc. LECO, Enerpac Tool Group Corp. EPAC and Allegion plc ALLE. While Lincoln Electric presently sports a Zacks Rank #1 (Strong Buy), both Enerpac Tool and Allegion carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these companies have improved for the current year. Earnings surprise in the last reported quarter was 14.38% for Lincoln Electric, 64.71% for Enerpac Tool and 2.33% for Allegion.

Earnings Estimates: The Zacks Consensus Estimate for the company’s earnings per share is pegged at $11.63 for 2021 and $12.34 for 2022, marking increases of 4.9% and 2.2% from the respective 60-day-ago figures. The consensus estimate for third-quarter earnings improved from $2.38 per share to $2.53. There were five upward revisions for the third quarter in the past 60 days, while seven positive revisions were recorded for both 2021 and 2022, respectively.

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