Machinery Stocks

Stanley Black & Decker Inc Valuation – January 2016 Update $SWK

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Stanley Black & Decker Inc (SWK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Stanley Black & Decker, Inc. is a global provider of power and hand tools, products and services. The Company provides products and services for various industrial applications, mechanical access solutions (automatic doors and commercial locking systems), and electronic security and monitoring systems. The Company’s operating segments include: Construction & Do-It-Yourself (CDIY), Industrial and Security. The CDIY segment consists of the Professional Power Tool Business; the Consumer Products Group, which includes outdoor products; the Hand Tools & Storage business, and the Fastening & Accessories business. The Industrial segment consists of the Industrial and Automotive Repair (IAR), Engineered Fastening and Infrastructure Businesses. The Security segment consists of the Convergent Security Solutions (CSS) and Mechanical Access Solutions (MAS) businesses.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SWK – January 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,369,780,186 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.25 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 20.62% Fail
6. Moderate PEmg Ratio PEmg < 20 19.19 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.46 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.25 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.52 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

SWK value Chart January 2016

EPSmg $4.79
MG Growth Estimate 8.83%
MG Value $125.20
Opinion Undervalued
MG Value based on 3% Growth $69.39
MG Value based on 0% Growth $40.68
Market Implied Growth Rate 5.34%
Current Price $91.82
% of Intrinsic Value 73.34%

Stanley Black & Decker Inc does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the insufficient earnings growth over the last ten years.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.01 in 2011 to an estimated $4.79 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.34% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Stanley Black & Decker Inc (SWK)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

SWK Charts January 2016

Net Current Asset Value (NCAV) -$39.52
Graham Number $68.32
PEmg 19.19
Current Ratio 1.25
PB Ratio 2.46
Dividend Yield 2.30%
Number of Consecutive Years of Dividend Growth 20

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $4,273,300,000
Total Current Liabilities $3,422,300,000
Long-Term Debt $3,847,300,000
Total Assets $15,870,900,000
Intangible Assets $9,739,600,000
Total Liabilities $10,231,900,000
Shares Outstanding (Diluted Average) 150,781,000

Earnings Per Share History

Next Fiscal Year Estimate $5.78
Dec2014 $4.76
Dec2013 $3.09
Dec2012 $5.30
Dec2011 $3.97
Dec2010 $1.32
Dec2009 $2.79
Dec2008 $3.84
Dec2007 $4.00
Dec2006 $3.46
Dec2005 $3.16
Dec2004 $4.36
Dec2003 $1.27
Dec2002 $2.10
Dec2001 $1.81
Dec2000 $2.22
Dec1999 $1.67
Dec1998 $1.53
Dec1997 -$0.47
Dec1996 $1.09

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.79
Dec2014 $4.09
Dec2013 $3.60
Dec2012 $3.72
Dec2011 $3.01
Dec2010 $2.72
Dec2009 $3.43
Dec2008 $3.75
Dec2007 $3.55
Dec2006 $3.18
Dec2005 $2.87
Dec2004 $2.60
Dec2003 $1.75
Dec2002 $1.95
Dec2001 $1.70
Dec2000 $1.50
Dec1999 $1.02

Recommended Reading:

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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