We recently downgraded our recommendation on
Stanley Black & Decker Inc.
) from Neutral to Underperform.
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The industrial tool maker has solid long-term growth prospects
and seems well prepared to benefit from the increase in
industrial tools demand globally as well as from the rising
exposure to emerging markets. The company is working hard to
expand its organic growth and has implemented six strategic
initiatives towards this end. Year-to-date, the company has
provided a return of 5.9%.
A look into Stanley Black & Decker's third quarter 2013
results clearly depicts that the company is performing well
financially. Earnings per share in the quarter grew 13.9% year
over year to $1.39 and surpassed the Zacks Consensus Estimate by
a cent. Revenue increased 9.6% primarily on the back of volume
gains and contributions from acquisitions.
However, near-term concerns forced us to downgrade our
recommendation on Stanley Black & Decker.
In the third quarter 2013, growth in emerging markets as well as
margin recovery in Security segment was below expectations. For
the year 2013, management of Stanley Black & Decker
anticipates that weakness continuing in the emerging markets will
pull down growth rates in the Industrial and CDIY segments while
the Security segment will suffer from declines in Europe.
Further, the US government shutdown will impact the company's
Accounting for all these, Stanley Black & Decker lowered its
earnings per share guidance from the $5.40-$5.65 to $4.90-$5.00
range. Organic revenue growth rate now stands at 3% versus 4%-5%
expected earlier, and free cash flow guidance has been lowered to
$800 million from $1 billion expected earlier.
In the last 30 days, the Zacks Consensus Estimate for Stanley
Black & Decker has gone down by 9.0% to $4.99 for 2013 and
declined by 13.1% to $5.50 for 2014. Also, we have an
of -3.7% for the fourth quarter 2013, -0.8% for 2013, and -1.3%
Other Stocks in the Industry
Stanley Black & Decker currently has $12.2 billion market
capitalization. Other companies to watch out for in the industry
) with a Zacks Rank #1 (Strong Buy) while
Norsk Hydro ASA
), each carry a Zacks Rank #2 (Buy).