How Stanley Black & Decker’s Valuations Compare to Peers



Relative valuation

As seen in the illustration below, the price to current year earnings estimate stands at around 17 for Stanley Black & Decker (SWK), Snap-on (SNA), and Tyco International (TYC). The outperformance of Masco (MAS), a housing industry (XHB) equipment provider, since July 2015 can be attributed to the completion of the tax-free spin-off of TopBuild, one of its business units. The divestment helped Masco simplify its product portfolio and improve focus on core growth areas. Investors generally reward stocks with richer multiples on the divestment of less profitable low margin businesses.

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There were no major variations in Stanley’s price-to-earnings ratio of 16.8 when earnings were considered on a trailing-12-month or forward basis. However, since earnings are expected to rise by 6% this year, the stock could be undervalued at current valuations. However, Snap-on’s trailing PE of 19.5 is two times greater than its forward PE of 17.5. Tyco’s trailing PE of 14.7 is smaller than its forward PE of 17.2 as earnings are expected to fall in fiscal 2016. A company’s past is not necessarily an indicator of future performance. Investors may reward companies with richer multiples if their prospects are better.

Analyst recommendations

Of the 19 analysts covering Stanley Black & Decker, seven of them have issued a “buy” rating. The remaining 11 analysts have a “hold” rating on the company. The consensus target price for the stock over the next 12 months is $105.85 against its current price of $103.51 as of March 24, 2016. The target consensus leads to a return potential of 2.3%. Among major investment banks (IYF), JP Morgan, Credit Suisse, and Morgan Stanley have “hold” ratings with price targets of $103, $99, and $104, respectively. UBS and Macquarie both have “buy” ratings with a target of $105.


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