Machinery Stocks

Snap-On Inc Valuation – March 2019 #SNA

Company Profile (excerpt from Reuters): Snap-on Incorporated, incorporated on April 7, 1930, is a manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions. The Company’s segments include the Commercial & Industrial Group, the Snap-on Tools Group, the Repair Systems & Information Group and Financial Services. The Commercial & Industrial Group consists of business operations serving a range of industrial and commercial customers around the world, including customers in the aerospace, natural resources, government, power generation, transportation and technical education market segments, primarily through direct and distributor channels. The Snap-on Tools Group consists of business operations primarily serving vehicle service and repair technicians through the Company’s mobile tool distribution channel. The Repair Systems & Information Group consists of business operations serving other professional vehicle repair customers, primarily owners and managers of independent repair shops and original equipment manufacturer (OEM) dealership service and repair shops, through direct and distributor channels. Financial Services consists of the business operations of Snap-on Credit LLC (SOC), the Company’s financial services business in the United States, and the Company’s other financial services subsidiaries in those international markets where it has franchise operations.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SNA – March 2019

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 $8,765,637,793 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.33 Pass
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 155.65% Pass
6. Moderate PEmg Ratio PEmg < 20 14.50 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.87 Pass
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 2.33 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.75 Pass
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

EPSmg $10.87
MG Growth Estimate 8.99%
MG Value $287.73
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $157.61
MG Value based on 0% Growth $92.39
Market Implied Growth Rate 3.00%
Current Price $157.61
% of Intrinsic Value 54.78%

Snap-on Incorporated qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $6.8 in 2015 to an estimated $10.87 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Snap-on Incorporated revealed the company was trading above its Graham Number of $123.17. The company pays a dividend of $3.41 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.5, which was below the industry average of 26.53, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.66.

Snap-on Incorporated performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.66
Graham Number $123.17
PEmg 14.50
Current Ratio 2.33
PB Ratio 2.87
Current Dividend $3.41
Dividend Yield 2.16%
Number of Consecutive Years of Dividend Growth 9

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,216,900,000
Total Current Liabilities $952,000,000
Long-Term Debt $946,000,000
Total Assets $5,373,100,000
Intangible Assets $1,135,100,000
Total Liabilities $2,254,500,000
Shares Outstanding (Diluted Average) 56,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.10
Dec2018 $11.87
Dec2017 $9.52
Dec2016 $9.20
Dec2015 $8.10
Dec2014 $7.14
Dec2013 $5.93
Dec2012 $5.20
Dec2011 $4.71
Dec2010 $3.19
Dec2009 $2.32
Dec2008 $4.07
Dec2007 $3.09
Dec2006 $1.69
Dec2005 $1.59
Dec2004 $1.40
Dec2003 $1.35
Dec2002 $1.81
Dec2001 $0.33
Dec2000 $2.53
Dec1999 $2.16

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.87
Dec2018 $9.89
Dec2017 $8.59
Dec2016 $7.79
Dec2015 $6.80
Dec2014 $5.84
Dec2013 $4.89
Dec2012 $4.21
Dec2011 $3.63
Dec2010 $3.02
Dec2009 $2.81
Dec2008 $2.82
Dec2007 $2.08
Dec2006 $1.57
Dec2005 $1.44
Dec2004 $1.40
Dec2003 $1.48

Recommended Reading:

Other ModernGraham posts about the company

Snap-on Inc Valuation – May 2018 $SNA
5 Best Stocks for Value Investors This Week – 2/18/17
Snap-on Inc Valuation – February 2017 $SNA
21 Best Undervalued Stocks of the Week – 8/27/16
Snap-on Incorporated Valuation – August 2016 $SNA

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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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