We recently upgraded our recommendation on industrial tool
Stanley Black & Decker Inc.
) to Neutral. The stock was previously rated Underperform by us.
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Why Upgrade to Neutral?
Stanley Black & Decker is a major player in the machine tools
and accessories industry, currently having a $13.1 billion market
capitalization. We believe future growth prospects of industrial
tool makers are very bright as demand for tools is expected to
surge as the global economy revives slowly. Emerging markets are
likely to be a favourite destination for these companies.
Talking about Stanley Black & Decker alone, we see the
company's strategic initiatives position it well for growth.
Acquisitions carried out in the past have proved to be very
advantageous for the company. Mention may be made of Black &
Decker and Niscayah, both acquired in 2011 and Infastech, Hong
Kong based leading manufacturer and supplier of specialty
engineered fastening technologies, purchased in February 2013.
Besides acquisitions, divestment of non-core assets has helped
the company utilize the free resources in a meaningful way.
Divestment of Hardware & Home Improvement Group (HHI) in Dec
2012 fetched Stanley Black & Decker after-tax proceeds of
roughly $1.3 billion, which the company intends to utilize for
share buybacks, dividend payments or acquisitions.
These positives notwithstanding, it's the near-term concern that
has restricted our recommendation change on Stanley Black &
Decker to Neutral. Management's guidance for 2013 points towards
a weak security and industrial markets in the United States in
2013, offsetting slight gains expected from the housing market
related recovery. It is anticipated that European markets would
witness a decline in the industrial and security markets and flat
construction market. Headwinds are also expected from a higher
tax rate and escalating interest expense.
Others Stocks to Consider
Other stocks to watch out for in the industry are
Proto Labs, Inc.
), each holding a Zacks Rank #2 (Buy).