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Here's Why It is Appropriate to Retain Stanley Black (SWK)
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Stanley Black & Decker, Inc. (SWK - Free Report) has been benefiting from its cost-reduction program and divestment of non-core operations. The company’s measures to reward its shareholders are encouraging.
However, persistent weakness in the Tools & Outdoor segment, arising from softness in the DIY market owing to lower demand for hand tools, has been weighing on Stanley Black’s operations. Increasing general and administrative expenses may hurt the bottom line. Given SWK's international presence, the unfavorable impact of foreign currency translation is likely to affect its performance. Stanley Black belongs to the Zacks Manufacturing - Tools & Related Products industry.
Let’s discuss the factors that should influence investors to retain this Zacks Rank #3 (Hold) company for the time being.
Growth Catalysts
Cost-Reduction Program: Stanley Black’s global cost-reduction program is expected to aid its bottom line and drive margin performance in the quarters ahead. The program comprises a series of initiatives designed to generate cost savings by resizing the organization and reducing inventory to drive long-term growth. In the first three months of 2024, the company generated pre-tax run rate savings of $145 million from the global cost-reduction program. It expects to generate run rate savings of $1.5 billion by the end of 2024. By 2025, it envisions run rate savings of $2 billion.
Supply-chain optimization programs and inventory reduction efforts are also expected to boost margins. In the first three months of 2024, the company reduced its inventory by $50 million. Benefiting from supply-chain transformation and inventory reductions, Stanley Black expects to achieve adjusted gross margins of more than 35% in 2024.
Divestment: The company has been divesting non-core operations to drive growth. In April 2024, Stanley Black divested its STANLEY Infrastructure (Infrastructure) business to Epiroc AB for a cash amount of $760 million. The divestment will help the company to focus on its core businesses while supporting capital-allocation priorities. It expects to use the cash proceeds of the transaction, net of modest taxes, to reduce its debt. In July 2022, the company sold its Security Business to Securitas AB for $3.2 billion cash. The company funded its debt reduction from the net proceeds of this sale.
In the same month, it divested its Automatic Doors business to Allegion for $900 million in cash. The divestitures reinforce Stanley Black's strategic focus on its core businesses. In August 2022, the company completed the divestiture of the STANLEY oil & gas division to Pipeline Technique Limited. The divestiture enabled Stanley Black to better focus on and efficiently direct its resources to the Industrial, and Tools & Outdoor segments.
Rewards to Shareholders: SWK is committed to rewarding its shareholders handsomely through dividends and share buybacks. In the first three months of 2024, the company paid dividends of $121.8 million, up 1.7% year over year. It also bought back shares worth $6.3 million in the same period. In July 2023, the company hiked its dividend by a penny to 81 cents per share (annually: $3.24 per share). In 2023, it paid out cash dividends of $482.6 million, up 3.6% year over year. In the same period, the company bought back shares worth $16.1 million. Stanley Black’s healthy free cash flow generation capacity supports its shareholder-friendly activities. For 2024, the company expects a free cash flow in the range of $0.6-$0.8 billion.
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has improved 0.9% in the past 60 days. The stock has risen 12.1% in the year-to-date period.
Brady Corporation (BRC - Free Report) presently carries a Zacks Rank #2 (Buy) and has a trailing four-quarter earnings surprise of 6.7%, on average.
The consensus estimate for BRC’s fiscal 2024 earnings has increased 3.3% in the past 60 days. Shares of Brady have gained 11.8% in the year-to-date period.
Crane Company (CR - Free Report) presently carries a Zacks Rank of 2. CR delivered a trailing four-quarter earnings surprise of 15.2%, on average.
The Zacks Consensus Estimate for CR’s 2024 earnings has increased 0.8% in the past 60 days. Its shares have gained 24.4% in the year-to-date period.
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Here's Why It is Appropriate to Retain Stanley Black (SWK)
Stanley Black & Decker, Inc. (SWK - Free Report) has been benefiting from its cost-reduction program and divestment of non-core operations. The company’s measures to reward its shareholders are encouraging.
However, persistent weakness in the Tools & Outdoor segment, arising from softness in the DIY market owing to lower demand for hand tools, has been weighing on Stanley Black’s operations. Increasing general and administrative expenses may hurt the bottom line. Given SWK's international presence, the unfavorable impact of foreign currency translation is likely to affect its performance. Stanley Black belongs to the Zacks Manufacturing - Tools & Related Products industry.
Let’s discuss the factors that should influence investors to retain this Zacks Rank #3 (Hold) company for the time being.
Growth Catalysts
Cost-Reduction Program: Stanley Black’s global cost-reduction program is expected to aid its bottom line and drive margin performance in the quarters ahead. The program comprises a series of initiatives designed to generate cost savings by resizing the organization and reducing inventory to drive long-term growth. In the first three months of 2024, the company generated pre-tax run rate savings of $145 million from the global cost-reduction program. It expects to generate run rate savings of $1.5 billion by the end of 2024. By 2025, it envisions run rate savings of $2 billion.
Supply-chain optimization programs and inventory reduction efforts are also expected to boost margins. In the first three months of 2024, the company reduced its inventory by $50 million. Benefiting from supply-chain transformation and inventory reductions, Stanley Black expects to achieve adjusted gross margins of more than 35% in 2024.
Divestment: The company has been divesting non-core operations to drive growth. In April 2024, Stanley Black divested its STANLEY Infrastructure (Infrastructure) business to Epiroc AB for a cash amount of $760 million. The divestment will help the company to focus on its core businesses while supporting capital-allocation priorities. It expects to use the cash proceeds of the transaction, net of modest taxes, to reduce its debt. In July 2022, the company sold its Security Business to Securitas AB for $3.2 billion cash. The company funded its debt reduction from the net proceeds of this sale.
In the same month, it divested its Automatic Doors business to Allegion for $900 million in cash. The divestitures reinforce Stanley Black's strategic focus on its core businesses. In August 2022, the company completed the divestiture of the STANLEY oil & gas division to Pipeline Technique Limited. The divestiture enabled Stanley Black to better focus on and efficiently direct its resources to the Industrial, and Tools & Outdoor segments.
Stanley Black & Decker, Inc. Price and Consensus
Stanley Black & Decker, Inc. price-consensus-chart | Stanley Black & Decker, Inc. Quote
Rewards to Shareholders: SWK is committed to rewarding its shareholders handsomely through dividends and share buybacks. In the first three months of 2024, the company paid dividends of $121.8 million, up 1.7% year over year. It also bought back shares worth $6.3 million in the same period. In July 2023, the company hiked its dividend by a penny to 81 cents per share (annually: $3.24 per share). In 2023, it paid out cash dividends of $482.6 million, up 3.6% year over year. In the same period, the company bought back shares worth $16.1 million. Stanley Black’s healthy free cash flow generation capacity supports its shareholder-friendly activities. For 2024, the company expects a free cash flow in the range of $0.6-$0.8 billion.
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Applied Industrial Technologies, Inc. (AIT - Free Report) presently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter average earnings surprise of 8.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has improved 0.9% in the past 60 days. The stock has risen 12.1% in the year-to-date period.
Brady Corporation (BRC - Free Report) presently carries a Zacks Rank #2 (Buy) and has a trailing four-quarter earnings surprise of 6.7%, on average.
The consensus estimate for BRC’s fiscal 2024 earnings has increased 3.3% in the past 60 days. Shares of Brady have gained 11.8% in the year-to-date period.
Crane Company (CR - Free Report) presently carries a Zacks Rank of 2. CR delivered a trailing four-quarter earnings surprise of 15.2%, on average.
The Zacks Consensus Estimate for CR’s 2024 earnings has increased 0.8% in the past 60 days. Its shares have gained 24.4% in the year-to-date period.