Stanley Black & Decker, Inc.SWK has announced yesterday that it is soon going to acquire International Equipment Solutions Attachments Group (IES Attachments) from KPS Capital Partners, LP. Concurrently, the company communicated that it completed $300-million share buyback program in July.
IES Attachments is a business unit of Oak Brook, IL-based International Equipment Solutions, LLC, which was formed in 2011 by KPS Capital Partners, LP. IES Attachments primarily engages in the manufacturing of attachment tools - with leading brands, including Pengo, Genesis and Paladin - for off-highway applications. Total revenues of $400 million were generated in the trailing 12 months.
Details of Buyout & Share Buyback Program
Per the agreement signed, Stanley Black will have to pay $690 million in cash for the IES Attachments buyout. The company intends to fund the transaction value through borrowings and available cash. The completion of the transaction is currently subject to regulatory approvals.
Upon the completion, the acquired assets will be integrated with Stanley Black's Industrial segment's Hydraulics Tools business. The brands acquired will create additional growth opportunities for the company in the industrial markets. Modest earnings accretion is anticipated from IES Attachments buyout in 2019 while the same is projected to amount 25-30 cents per share by the third year of completion.
On the other hand, the company's total share buyback amounted to $500 million, after the completion of $300-million program in July.
Stanley Black's Capital Allocation Strategies
The company follows a sound capital-allocation strategy by investing money for acquiring meaningful businesses as well as focusing on rewarding shareholders handsomely through dividend payments and share buybacks.
Few important acquisitions made since the beginning of last year include Newell Tools (March 2017), Craftsman (March 2017) and Nelson Fastener Systems (April 2018). Irwin and Lenox - the two prime tool brands added through Newell Tools buyout - are anticipated to yield revenue synergies of $100-$150 million in the years ahead while the Craftsman products are predicted to generate $1 billion in sales earlier than the initial forecast of 10 years of acquisition. Moreover, the Nelson Fastener assets are anticipated to strengthen the company's Engineered Fastening business.
On the other hand, Stanley Black paid cash dividends of approximately $189.1 million and repurchased shares worth $212.7 million in the first half of 2018. It's worth noting here that the company, in the first quarter of 2018, executed a capped-call transaction and secured the option to purchase roughly 3.2 million shares by March 2021 while it hiked its quarterly dividend rate by 4.8% in July 2018. For 2018, the company anticipates earnings accretion of 20 cents per share from the share buyback of $200 million worth of shares in the second quarter.
In the long term, the company wishes to follow its 50/50 capital-allocation strategy of acquisitions and reward shareholders. Dividend payout is predicted to be 30-35%.
Zacks Rank & Key Picks
With a market capitalization of nearly $22.2 billion, Stanley Black currently carries a Zacks Rank #3 (Hold). The company stands to gain from its solid product portfolio as well as business expansion in emerging markets and favorable e-commerce trends. However, forex tailwinds and increase in commodity inflation are predicted to adversely impact earnings by 40 cents and 30 cents per share, respectively. We believe that the company's inorganic initiatives, as well as shareholder-friendly policy, will help in building a positive sentiment for the stock.
Stanley Black's share price has increased 0.1% yesterday, closing the trading session at $145.1. It has increased 6.9% in the past month versus 6.4% growth recorded by the industry .
However, the company's earnings estimates have been revised downward in the past 30 days. Currently, the Zacks Consensus Estimate of $8.39 for 2018 reflects a decline of 0.5% over the 30-day ago tally.
Stanley Black & Decker, Inc. Price and Consensus
Stanley Black & Decker, Inc. Price and Consensus | Stanley Black & Decker, Inc. Quote
Some better-ranked stocks worth considering in the Zacks Industrial Products sector are Altra Industrial Motion Corp. AIMC , Chart Industries, Inc. GTLS and Barnes Group Inc. B . While both Altra Industrial Motion and Chart Industries sport a Zacks Rank #1 (Strong Buy), Barnes Group carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
In the past 60 days, earnings estimates for each of these stocks improved for the current year and the next year. Also, the average positive earnings surprise for the last four quarters was 4.01% for Altra Industrial Motion, 29.36% for Chart Industries and 6.88% for Barnes Group.
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