Industrial tool maker Stanley Black & Decker, Inc.SWK announced that it has completed selling a majority portion of its Mechanical Security businesses to dormakaba. In lieu of its assets, the company received approximately $725 million in cash.
In the last one month, shares of the company yielded 3.76% return, marginally above 3.75% gain recorded by the Zacks categorized Machine Tools & Related Products industry.
Before discussing the divestment, a brief description of Stanley Black & Decker's Security segment might be useful. The segment comprises Convergent Security Solutions and Mechanical Access Solutions businesses. The latter sells automatic doors, commercial hardware, locking mechanisms, electronic keyless entry systems, keying systems, tubular and mortise door locksets. In 2016, the Security business generated revenues of $2.1 billion, representing 18.4% of the company's total revenue in the year.
Per Stanley Black & Decker's signed definitive agreement in Dec 2016, the divested assets included the commercial hardware brands of BEST Access, phi Precision and GMT. In the past 12 months, these assets generated revenues of $270 million and earnings before interest, tax, depreciation and amortization of $52 million.
Businesses not meant for sale including commercial electronic security and automatic doors, contributed approximately $1.8 billion in revenues in the last 12 months. Brands such as Sargent and Greenleaf were not included in the sale.
The company expects that the divestment will dilute earnings by roughly 19 cents per share in 2017. However, it anticipates the impact of this dilution to be more than offset by the accretion anticipated from the Newell Tools acquisition (expected to be completed in the first quarter), low-interest financing strategies and share buybacks. Netting the impacts, the company anticipates 5 cents earnings accretion in the year.
Though the initial impacts of the divestment seem unfavorable, we believe such dispositions are in sync with Stanley Black & Decker's inorganic ways of strengthening its core businesses. The estimated after-tax cash proceeds of approximately $700 million from the deal can be utilized for boosting more attractive businesses in the company's portfolio. Also, the company anticipates recording divestment-related book gain (after-tax) of roughly $200−$215 million in 2017.
Stocks to Consider
Stanley Black & Decker has a market capitalization of $19.2 billion. Over the last 30 days, the Zacks Consensus Estimate for the stock has increased 0.4% to $6.94 for 2017. We believe that this Zacks Rank #3 (Hold) stock has solid growth potential, backed by its strategy of shifting its business portfolio toward favored growth markets through organic and inorganic ways.
Stanley Black & Decker, Inc. Price and Consensus
Some better-ranked stocks in the machinery industry include Chart Industries Inc. GTLS , Manitex International, Inc. MNTX and Roper Technologies, Inc. ROP . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Chart Industries Inc. has an average positive earnings surprise of 548.51% for the last four quarters. Also, its earnings estimates for 2017 have improved in the last 60 days.
Manitex International, Inc.'s earnings estimates for 2017 have improved over the last 60 days. Earnings surprise in the last quarter was a positive 225%.
Roper Technologies, Inc.'s financial performance has been impressive, with an average positive earnings surprise of 0.92% for the last four quarters. Also, earnings estimates for 2017 and 2018 have been revised upward, over the last 60 days.
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