We maintain a Neutral rating on
). The company's current trailing 12-month earnings multiple is
13.1x, compared with the 12.8x average for the peer group and 14.5x
for the S&P 500.
Over the last five years, SNA's shares have traded in a range of
5.8x to 22.7x trailing 12-month earnings. Therefore, it is in the
middle of the historical range, indicating upside.
The 21.8% discount to the peer group based on our forward
estimate for 2012 is much less than the historical average of
24.2%, indicating very minor upside. However, considering the fact
that expected earnings growth of 10.0% over the next 5 years
is the same as the growth of its peers at 10.0%, we think the
valuation is justified.
We therefore have a Neutral recommendation on the stock. Our
target price is $66.00 or 13.14x 2012 EPS, which is well within the
The company recently reported modest first quarter results with
broad-based revenue growth across its business segments. However,
the economic turmoil in Europe has had a negative impact on the
overall revenue, with major impact in the Repair System &
Snapshot of the recent Quarter results
reported its financial results for the first quarter of 2012.
Earnings per share were $1.21, representing a 26% increase from the
year-ago quarter. Earnings results for the quarter surpassed the
Zacks Consensus Estimate of $1.16.
Net sales came in at $735.2 million in the quarter, up 6% year
over year but were almost sequentially declining marginally by
0.2%. This, however, missed the Zacks Consensus Estimate of $737
If we exclude the impact of foreign currency translation, sales
increased by 7%. The overall growth in sales was driven by
double-digit growth in the company's tools segment and its
mainstream businesses in emerging markets.
The Commercial and Industrial Group reported net sales of $286.5
million, up 6.4% year over year but down 3% sequentially. The
year-over-year growth was primarily led by improved sales in the
major businesses but the growth was partially offset by fall in the
Europe-based hand tools business sales due to a weak situation in
The Snap-on Tools Group revenues came in at $316.6 million,
rising 12.3% annually and 8.1% sequentially, as sales in the United
States has continued to improve further.
Repair Systems & Information Group recorded revenue of
$226.1 million, declined 0.4% from the previous-year quarter and
4.4% sequentially. The reduction was primarily attributable to low
sales of undercar equipment in Europe.
Financial Services revenue was $38 million, up 47.3% from the
year-ago quarter but down 72% sequentially. The year-over-year
growth was due to the constant development in finance
Gross profit was $347.7 million, up 5.2% from the year-earlier
quarter, 3.5% sequentially. Gross margin as a percentage of sales
in the quarter came to 47.3% versus 47.7% from prior year. The
margin pressure in its Europe-based hand tools market caused the
slight decline in gross margin.
The Commercial and Industrial Group's gross margin was 35.6%,
falling from 38% in the prior-year quarter, driven by increased
margin pressure in the Europe-based hand tools
The Snap-on Tools Group gross margin came in at 43.9% on the
back of increased high US sales but declined slightly from 44.3% in
the previous-year quarter.
Segment-wise, Repair Systems & Information Group posted
gross profit of $106.7 million, improved by $4.6 million from
previous year. The gross margin for the group came in at 47.2% in
the quarter enhanced 220 basis points from 45% previous year. The
rise was led by positive sales in diagnostics and repair
information products. Gross profit gained from current RCI
The operating expenses in the quarter were $250.2 million, up
2.8% year over year, mainly due to benefits from sales of RCI and
restructuring initiatives but the enhancement was partly offset by
increased restructuring cost.
Balance Sheet and Cash Flow
The company had cash and cash equivalents of $161.6 million,
decreasing from $185.6 million at the end of the quarter. In
addition, net trade & other accounts receivable came in $463.1
million, which nearly remains flat year over year. Long-term debt
reduced to $965.5 million from $967.9 million in the previous year
Net cash provided by operating activities amounted to $73
million in the quarter compared to $58 million in the previous
year. Capital expenditures incurred were $21.8 million versus $18.6
million at the end of the previous year quarter.
Snap-on Incorporated is a leading global innovator, manufacturer
and marketer of tools, equipment, diagnostics, repair information
and systems solutions for professional users performing critical
The Home Depot, Inc
) is a major competitor.
Snap-On currently has a Zacks Rank #2, which implies a short
term (1-3 months) Buy rating on the stock.
HOME DEPOT (HD): Free Stock Analysis Report
SNAP-ON INC (SNA): Free Stock Analysis Report
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