Machinery Stocks

Stanley Black & Decker Inc Valuation – March 2019 #SWK

Company Profile (excerpt from Reuters): Stanley Black & Decker, Inc., incorporated on June 4, 1901, is a global provider of hand tools, power tools and related accessories, mechanical access solutions, such as automatic doors and commercial locking systems, electronic security and monitoring systems, healthcare solutions, engineered fastening systems and products and services for various industrial applications. The Company’s segments include Tools & Storage, Security and Industrial. Its Tools & Storage segment consists of the power tools and hand tools, accessories and storage (HTAS) businesses. Its Security segment consists of the convergent security solutions (CSS) and mechanical access solutions (MAS) businesses. Its Industrial segment consists of the engineered fastening and infrastructure businesses. It offers brands, such as Newell Tools and Craftsman, Irwin, Lenox and Craftsman.

Downloadable PDF version of this valuation:

ModernGraham Valuation of SWK – 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 $20,328,758,300 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.14 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 92.73% Pass
6. Moderate PEmg Ratio PEmg < 20 19.98 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.57 Fail
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 1.14 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.73 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

EPSmg $6.72
MG Growth Estimate 6.05%
MG Value $138.47
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $97.45
MG Value based on 0% Growth $57.13
Market Implied Growth Rate 5.74%
Current Price $134.27
% of Intrinsic Value 96.97%

Stanley Black & Decker, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.79 in 2015 to an estimated $6.72 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 5.74% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Stanley Black & Decker, Inc. revealed the company was trading above its Graham Number of $93.99. The company pays a dividend of $2.58 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 19.98, 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 $-46.69.

Stanley Black & Decker, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$46.69
Graham Number $93.99
PEmg 19.98
Current Ratio 1.14
PB Ratio 2.57
Current Dividend $2.58
Dividend Yield 1.92%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $4,569,400,000
Total Current Liabilities $4,001,600,000
Long-Term Debt $3,819,800,000
Total Assets $19,408,000,000
Intangible Assets $12,441,200,000
Total Liabilities $11,568,100,000
Shares Outstanding (Diluted Average) 149,897,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.37
Dec2018 $3.99
Dec2017 $8.05
Dec2016 $6.53
Dec2015 $5.79
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.72
Dec2018 $5.87
Dec2017 $6.42
Dec2016 $5.44
Dec2015 $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

Recommended Reading:

Other ModernGraham posts about the company

Best Dividend Paying Stocks for Dividend Growth Investors – February 2019
Best Dividend Paying Stocks for Dividend Growth Investors – August 2018
Best Dividend Paying Stocks for Dividend Growth Investors – June 2018
Stanley Black & Decker Inc Valuation – June 2018 $SWK
Best Dividend Paying Stocks for Dividend Growth Investors – August 2017

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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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