Stanley Black & Decker (NYSE: SWK) manufactures and sells power tools, hand tools, storage products and accessories, outdoor power equipment, engineered fastening systems, and products for infrastructural applications.
The company started trading under its current name after the merger of two former companies, The Stanley Works and The Black & Decker Corporation, in March 2010. The $24.2-billion company has solid growth opportunities, despite being exposed to near-term hurdles.
In 2021, the company reported better-than-expected earnings in all four quarters — with the bottom line exceeding the consensus estimate by 4.9% in the last reported quarter.
During the year, supply-chain restrictions and cost headwinds played spoilsports. Over the past year, shares of this tool-maker have declined 22.8%.
Stanley Black’s Tailwinds and Headwinds
Solid Footprints in Tools & Storage Business: The company derived roughly 82% of its revenues from the Tools & Storage segment in 2021.
Through the Power Tools, Outdoor Power Equipment, and Hand Tools, Storage & Accessories businesses, the segment caters to the needs of a wide customer base across multiple industries. Prime brands offered under the segment include BLACK+DECKER, DEWALT, CRAFTSMAN, and others.
Interestingly, the company has boosted its growth opportunities in the outdoor power equipment market with the acquisition of the 80% stake in MTD Holdings Inc. (a 20% stake was acquired in January 2019) and Excel Industries in December last year.
Back then, James M. Loree, Stanley Black CEO, had said, “The combination of these two high-quality, complementary businesses with our existing outdoor business creates a powerful growth engine with approximately $4 billion in annual revenue across the $25 billion-plus outdoor power equipment industry.”
In 2022, these outdoor acquisitions are forecasted to boost Stanley Black’s earnings by $0.60 per share.
Growing Industrial Business: Stanley Black’s Industrial segment accounted for 16% of the company’s total revenues in 2021. Growth opportunities for this segment appear bright.
Additions of Consolidated Aerospace Manufacturing, LLC in February 2020 and International Equipment Solutions Attachments Group in March 2019 to this segment proved advantageous.
Sound Capital Allocation Policies: Over time, Stanley Black has used its resources for investing in mergers and acquisitions as well as rewarding shareholders handsomely.
Talking about rewards to shareholders, the company used $34.3 million for repurchasing shares and distributed dividends totaling $474.8 million in 2021. These reflect an improvement of over $26.2 million share buybacks and a $431.8 million dividend distribution done in 2020.
Worth mentioning is that proceeds from the sale of the company’s electronic security business will likely be used by Stanley Black to fund its $4-billion share buyback program.
Projections for 2022 and Long-Term Financial Targets: Stanley Black anticipates adjusted earnings to be $12-$12.50 per share in 2022. Organic sales are forecast to be 7%-8%, with high-single-digit expected for Tools & Storage and high-single to low-double digits for Industrial.
Over the long term, Stanley Black predicts total revenue to increase within the 10%-12% range, with organic growth expected at 4%-6%. Earnings per share growth are forecast to vary within the 10%-12% range and free cash flow to increase over net income.
Near-Term Cost Hurdles: Limitations in the supply of semiconductor chips are affecting Stanley Black’s operations. Also, high shipping and transport charges, currency woes, and commodity cost inflation are woes to watch for.
In 2021, the company’s experienced $700 million of cost-headwinds from such issues, while the same is predicted to amount to $800 million in 2022.
Customer Concentration Risks: Two important retail customers of Stanley Black are Lowe’s Companies (LOW) and The Home Depot (HD). Both retailers accounted for 15% of Stanley Black’s total revenues in 2021.
Such a high concentration of business with these retailers is concerning, as any order changes for them will have impacts on Stanley Black’s operations.
Highly Leveraged Balance Sheet: Huge debts can be concerning as they raise financial obligations. Exiting 2021, Stanley Black’s long-term debt was $4.4 billion and its short-term borrowing was $2.2 billion.
Compared with such huge debts, the company’s cash and cash equivalents were just $0.1 billion. Interest expenses were $185 million in 2021.
Wall Street’s Take
Stanley Black presently has a Moderate Buy consensus rating based on seven Buys, one Hold, and two Sells. The average price target of Stanley Black is $206.90, suggesting 39.8% upside from current levels.
Risk Analysis
According to the TipRanks Risk Factors tool, Stanley Black stock is at risk mainly from two factors: Finance & Corporate, and Macro & Political, which contribute 10 and six risks, respectively, to the total 33 risks identified for the stock.
Conclusion
Stanley Black seems like it could be a smart pick for long-term investors.
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