Stanley Black & Decker, Inc. (SWK) and Snap-on Incorporated (SNA) are two prominent industrial and household tools and accessories manufacturers. SWK is a global provider of power and hand tools, related accessories, mechanical access solutions, electronic security, and monitoring systems for various industrial and commercial applications. SNA manufactures and markets hand and power tools, diagnostics and shop equipment, and repair information and systems solutions for professional users, primarily in the automotive service industry. It also provides financing programs to facilitate the sales of its products and support its franchise business.
Rebounding manufacturing and industrial activities has helped the tools and accessories industry witness huge demand last year. Although inflationary pressure and supply chain constraints have led to tools and accessories manufacturers witnessing rising input costs, ongoing efforts to ease supply chain logjams and strong demand from home improvement and infrastructure activities worldwide should allow the industry to get back on the growth path soon. Also, integration of advanced technologies, electrification of tools, and improved security should drive the industry’s growth.
The global power tool accessories market is expected to grow at a 4.6% CAGR to reach $14.31 billion by 2027. So, both SNA and SWK should benefit.
SWK is a winner with 1.1% gains over the past week versus SNA’s 1.6% loss. But which of these stocks is a better pick now? Let’s find out.
Latest Developments
On December 1, 2021, SWK announced that it purchased the remaining 80% ownership stake in MTD Holdings Inc. (MTD), a manufacturer of outdoor power equipment for the mass market, and completed the acquisition of Excel Industries, a leading manufacturer of premium commercial and residential turf equipment. This acquisition will allow SWK to lead in the growing outdoor power equipment industry and complement its position as the fastest-growing provider of cordless electric outdoor power equipment. Also, SWK aims to generate approximately $4 billion in annual revenue.
On February 22, 2022, SNA revealed its Snap-on Diagnostic Thermal Laser, which features both laser and thermal components for unrivaled performance on a greater variety of applications. Thermal imaging can help speed up the diagnostic process across many systems, including powertrain and exhaust, body and electrical, chassis and brakes, and HVAC, and is ideal for checking inlet and outlet temperatures of catalytic converters. This two-in-one system should witness high demand in the coming months.
Recent Financial Results
SWK’s net sales for the fiscal 2021 fourth quarter ended January 1, 2022, increased 1.6% year-over-year to $4.07 billion. The company’s non-GAAP gross profit came in at $1.18 billion, representing a decline of 16.5% from the prior-year period. Its non-GAAP operating profit came in at $366.10 million, indicating a 46.6% year-over-year decline. SWK’s non-GAAP net earnings came in at $353.70 million, down 28.3% from the year-ago period. Its non-GAAP EPS from continuing operations decreased 29.1% year-over-year to $2.14. The company had $294.80 million in cash, cash equivalents, and restricted cash as of January 1, 2022.
For its fiscal 2021 fourth quarter ended January 2, 2022, SNA’s net sales increased 3.2% year-over-year to $1.11 billion. The company’s gross profit came in at $533.40 million, indicating a 3.3% year-over-year improvement. Its adjusted operating earnings came in at $299.40 million, up 4.8% from the prior-year period. While its adjusted net earnings increased 6.6% year-over-year to $223.70 million, its adjusted EPS grew 6.8% to $4.10. The company had $780 million in cash and cash equivalents as of January 2, 2022.
Past and Expected Financial Performance
SWK’s revenue and EBITDA have increased at CAGRs of 3.8% and 5.7%, respectively, over the past three years.
SWK’s EPS is expected to grow 7.6% year-over-year in fiscal 2022, ending January 1, 2023, and 11% in fiscal 2023. Its revenue is expected to grow 24.1% year-over-year in fiscal 2022 and 4.7% in fiscal 2023. Analysts expect the company’s EPS to grow at a 10.8% rate per annum over the next five years.
SNA’s revenue and EBITDA have increased at CAGRs of 4.2% and 5.8%, respectively, over the past three years.
Analysts expect SNA’s EPS to improve 2.3% year-over-year in fiscal 2022, ending January 2, 2023, and 5.4% in fiscal 2023. Its revenue is expected to grow 3.7% year-over-year in fiscal 2022 and 3.6% in fiscal 2023. Analysts expect the company’s EPS to grow at a 5% rate per annum over the next five years.
Valuation
In terms of non-GAAP forward PEG, SNA is currently trading at 1.80x, 42.9% higher than SWK’s 1.26x. In terms of forward EV/Sales, SWK’s 1.51x compares with SNA’s 2.63x.
Profitability
SWK’s trailing-12-month revenue is almost 3.4 times SNA’s. However, SNA is more profitable, with a 26.8% EBITDA margin versus SWK’s 16.6 %.
Furthermore, SNA’s ROE, ROA, and ROTC of 20.9%, 10.7%, and 13.2% compare with SWK’s 14.1%, 4.9%, and 7.3%, respectively.
POWR Ratings
While SNA has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, SWK has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both SNA and SWK have a B grade for Value, consistent with their lower-than-industry valuation ratios. SNA’s 10.12x forward EV/EBIT is 37.5% lower than the 16.18x industry average. SWK has an 11.27x forward EV/EBIT, 30.4% lower than the industry average of 16.18x.
SNA has a B grade for Quality, consistent with its higher-than-industry profitability ratios. SNA’s trailing-12-month levered free cash flow margin of 10% is 133.2% higher than the industry average. SWK’s C grade for Quality is in sync with its negative levered free cash flow margin.
Of the 65 stocks in the C-rated Home Improvement & Goods industry, SNA is ranked #9, and SWK is ranked #48.
Beyond what we have stated above, our POWR Ratings system has also rated SNA and SWK for Stability, Momentum, Sentiment, and Growth. Get all SNA ratings here. Also, click here to see the additional POWR Ratings for SWK.
The Winner
The rising demand for tools and accessories and efforts to ease supply chain constraints should allow SNA and SWK to overcome rising input costs and grow substantially in the coming months. However, higher profitability makes SNA a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Home Improvement & Goods industry.
SWK shares were unchanged in after-hours trading Friday. Year-to-date, SWK has declined -24.93%, versus a -4.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
Stanley Black & Decker vs. Snap-On: Which Tools & Accessories Stock is a Better Buy? StockNews.com
