Company Description: Stanley Black & Decker Inc. is a diversified global provider of hand tools, power tools and related accessories and systems resulted from the March 2010 merger of StanleyWorks and Black & Decker.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
SWK is trading at a discount to only 3.) above. Since SWK's tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 86.9% premium to its calculated fair value of $38.04. SWK did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
SWK earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1877 and has increased its dividend payments for 44 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $123 is below the $500 target I look for in a stock that has increased dividends as long as SWK has. If SWK grows its dividend at 4.7% per year, it will take 8 years to equal a MMA yielding an estimated 20-year average rate of 3.1%.
Memberships and Peers: SWK is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Danaher Corporation (DHR) with a 0.2% yield, Makita Corp. (MKTAY) with a 0.9% yield and Snap-On Incorporated (SNA) with a 2.6% yield.
Conclusion: SWK did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks SWK as a 2-Star Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $52.81 before SWK's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 44 years of consecutive dividend increases. At that price the stock would yield 3.1%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 7.7%. This dividend growth rate is higher than the 4.7% used in this analysis, thus providing no margin of safety. SWK has a risk rating of 1.50 which classifies it as a Low risk stock.
The 2010 merger of Stanley and Black & Decker combined two of the most respected names in the industry. The combined company stands to benefit from significant synergies. When the economy recovers, the company is well positioned to gain market share. The company has a good debt and free cash flow payout positions. However its low relatively low yield and dividend growth rate combine produce a low NPV MMA Differential and a low fair value $38.04. For now, I will stay on the sidelines.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in SWK (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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Tags: [SWK] [DHR] [MKTAY] [SNA]
