Stanley Black & Decker, Inc.SWK has announced yesterday that it is soon going to acquire 20% stake in Valley City, OH-based MTD Products Inc. The buyout, valued at $234 million, marks the company's entry into the global garden and lawn market.
We believe the stake-acquisition news, along with an added opportunity to acquire MTD Products' outstanding shares in 2021, have lifted sentiments on the stock. Yesterday, the company's share price gained roughly 2.9%, closing in at $145.86.
Details of Buyout
MTD Products, a privately owned company, was founded in 1932. It specializes in manufacturing power equipment for outdoor space. Its products including walk-behind mowers, lawn tractors, snow throwers, zero turn mowers, utility vehicles, chain saws and trimmers, are primarily manufactured in facilities located in Europe, North America and Asia.
Prime brands - Remington, Cub Cadet, Troy-Bilt and others - serve customers in both professional and residential garden, and lawn end markets. Total revenues of more than $2 billion were generated in 2017.
Per the agreement signed, Stanley Black will have to pay $234 million in cash for the stake acquisition. Further, the company is entitled to appoint two representatives to the board of directors of MTD Products. If further stake is acquired in 2021, the valuation is likely to be done on the basis of MTD Products' earnings before interest, taxes, depreciation and amortization in 2018.
Stanley Black anticipates that MTD Products' addition to its portfolio will create market opportunities as well as strengthen its existing relationships. The company will also gain from MTD Products' skilled workforce, efficient management, innovative capabilities and solid distribution network.
Subject to receipt of regulatory approvals and fulfilment of customary closing conditions, the company anticipates closing the transaction in early 2019.
Stanley Black's Inorganic Initiatives
The above-mentioned transaction is consistent with Stanley Black's policy of acquiring businesses to improve product lines and market exposure. In the second quarter of 2018, acquired assets added 3% to the quarter's sales growth. On a segmental basis, acquired assets added 11% to the Industrial segment's share growth and 4% to the Security segment's sales.
In August this year, the company agreed to acquire IES Attachments - manufacturer of attachment tools for off-highway applications. Upon the completion, which is currently subject to the receipt of regulatory approvals, assets of IES Attachments are going to be integrated with Stanley Black's Industrial segment's Hydraulics Tools business. Modest earnings accretion from the buyout in anticipated in 2019 while roughly 25-30 cents per share contribution is predicted by the third year of the completion.
Prior to this, the company acquired Newell Tools (March 2017), Craftsman (March 2017) and Nelson Fastener Systems (April 2018).
Zacks Rank & Key Picks
With a market capitalization of nearly $22.3 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.
In the past month, Stanley Black's share price has increased 5.7%, outperforming 5.1% growth recorded by the industry .
The Zacks Consensus Estimate for earnings per share on the company remained stable at $8.39 for 2018 while increased by one cent to $9.41 for 2019.
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 Colfax Corporation CFX , Chart Industries, Inc. GTLS and Barnes Group Inc. B . While Colfax sports a Zacks Rank #1 (Strong Buy), both Chart Industries and Barnes Group carry 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. The average positive earnings surprise for the last four quarters was 7.91% for Colfax, 29.36% for Chart Industries and 6.88% for Barnes Group.
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