A new quarter and a further increase in annual forecasts for Stanley Black & Decker (NYSE: SWK). Management started 2021 moving towards annual adjusted earnings per share (EPS) of $ 9.70 to $ 10.30 and increased it twice during the year, and it now stands at 11 , $ 35 to $ 11.65.
The near-term outlook is improving and there is plenty of reason to believe that Stanley is poised for excellent long-term growth as well. Here is the truth.
More than just stock at home
A quick glance at Stanley’s first-half earnings shows the company is making money. Clearly, this is thanks to its collection of tool brands. They range from DIY-focused mainstream brands like Black & Decker and Craftsman to merchant tools like Stanley and Irwin and professional tools like DeWALT, Stanley FatMax and Lenox.
Home care measures have led to a well-documented revival of interest in DIY and home improvement, and the company has been one of the main beneficiaries. However, it would be a mistake to assume that Stanley’s growth will collapse while the pandemic is a historic footnote.
Indeed, during the call for results, CFO Don Allan said that “we have seen a very strong increase in professional activity from the fourth quarter of last year” driven by demand for professional construction.
Tools and storage
Stanley management likes the company to be seen as the consolidator of choice in the tool industry, and Irwin, Lenox and Craftsman are all brands acquired over the past five years. As a result, management can continue to create value in its brands by developing distribution channels and implementing growth initiatives such as the launch of more wireless tools. For reference, “Stanley’s existing wireless outdoor electrical equipment business grew by more than 70% in the first half of the year,” according to CEO Jim Loree during the earnings call.
Additionally, the pandemic has boosted Stanley’s e-commerce operations. Loree argued that Stanley has “about three times the share of e-commerce as our next closest competitor,” and the share of tool sales coming from e-commerce is now 18% down from just 12% ago. is one year old.
Put simply, Stanley is well positioned to profit from the postpandemic e-commerce world.
The acquisition of MTD Holdings
Having already bought 20% of outdoor electrical equipment company MTD Holdings in 2019, Stanley recently announced that it has agreed to buy the remaining 80% for $ 1.6 billion. Not only will the addition of MTD turn Stanley into a major player in a new complementary category, lawn and garden equipment, it is shaping up to be a great deal as well.
Stanley management expects MTD to add $ 0.50 to EPS in 2022 and more than $ 1 by 2025. Additionally, the total purchase price is roughly 8 times adjusted 12-month profit. before interest, taxes, depreciation and amortization (EBITDA). This is good value in itself. It looks even better when you consider that Stanley’s management believes they can take MTD’s EBITDA margin from high to single digits “in mid-teens over the next four years. , as the cost and revenue opportunities materialize “.
Is Stanley Black & Decker stock good value?
The confluence of growth opportunities leads Wall Street analysts to note very attractive growth figures for Stanley. For example, not counting the addition of MTD, analyst consensus predicts that Stanley’s EBITDA will grow from $ 2.7 billion in 2020 to $ 3.6 billion in 2023. Meanwhile, analysts predict that Free cash flow (FCF) will grow from $ 1.7 billion in 2020 to around $ 2.2 billion in 2023.
For the whole of 2021, Stanley trades on an estimated enterprise value / EBITDA multiple of less than 11 times EBITDA and a price / FCF multiple of around 18 times FCF. Add the acquisition of MTD and the potential for postpandemic growth, and Stanley looks like good value for money.
The market may well be worried about a slowdown in DIY consumer spending and the specter of rising commodity prices. However, Stanley has many other growth prospects, and the fact that management has raised its guidance until 2021 demonstrates the resilience of margins to rising costs.
All in all, Stanley Black & Decker remains a great option for investors.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link