American tool and storage company Stanley Black & Decker, Inc. (SWK) in New Britain, Conn., reported mixed fourth-quarter results recently. While its sales for the quarter missed the consensus estimate by 8.7%, its $2.14 per share adjusted earnings beat the Street’s estimate by 3.9%. Its board of directors has approved a regular first-quarter cash dividend of $0.79 per common share, extending the company's record for the longest consecutive annual and quarterly dividend payments among industrial companies.

However, Citi analysts double downgraded their rating for the stock to Sell from Buy and cut their price target on the stock to $145 from $215. SWK also saw a decline in hedge fund sentiment.

The stock has declined 9.7% in price over the past month and 24.5% over the past nine months to close yesterday’s trading session at $158.65. In addition, it is currently trading 29.5% below its 52-week high of $225, which it hit on May 10, 2021. Furthermore, concerns over supply chain issues and rising input costs make its near-term prospects uncertain.

Here is what could influence SWK’s performance in the coming months:

Top Line Growth Does Not Translate into Bottom Line Improvement

For the fiscal fourth quarter, ended Jan. 1, 2022, SWK’s net sales surged 2% year-over-year to $4.07 billion. Its total assets came in at $28.20 billion for the period ended Jan. 1, 2022, compared to $23.57 billion for the period ended Jan. 2, 2021. However, its net earnings were $328.20 million, representing a 29.8% year-over-year decrease. Also, its EPS came in at $1.99, down 28.9% year-over-year.

High Profitability

In terms of trailing-12-month net income margin, SWK’s 10.82% is 68.6% higher than the 6.42% industry average. Its 3.32% trailing-12-month CAPEX/Sales is 27.9% higher than the 2.60% industry average. Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 15%, 7.37%, and 5.99%, respectively, are higher than the 13.47%, 6.91%, and 5.16% industry averages.

Lower-Than-Industry Valuation

In terms of forward P/CF, SWK’s 7.16x is 48.9% lower than the 14.01 industry average. Likewise, its 13.33x forward non-GAAP P/E is 27.4% lower than the 18.37x industry average. And the stock’s 12.51x and 1.24x respective forward EV/EBIT and non-GAAP PEG are lower than the 15.90x and 1.46x industry averages.

POWR Ratings Do not Indicate Sufficient Upside

SWK has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SWK has a C grade for Stability, which is consistent with its 1.39 beta.

SWK also has a D grade for Growth and Sentiment. This is justified because analysts expect its EPS to decline 45.4% for the quarter ending March 31, 2022.

SWK is ranked #45 of 61 stocks in the Home Improvement & Goods industry. Click here to access all of SWK’s ratings.

Bottom Line

SWK is currently trading below its 50-day and 200-day moving averages of $180.20 and $191.18, respectively, indicating a downtrend. Furthermore, it could continue retreating in the near term due to concerns over shipping difficulties and rising materials expenses. So, we think it could be wise to wait for a better entry point in the stock.

How Does Stanley Black & Decker (SWK) Stack Up Against its Peers?

While SWK has an overall POWR Rating of C, one might want to consider investing in the following Home Improvement & Goods stocks with an A (Strong Buy) or B (Buy) rating: Acuity Brands, Inc. (AYI), Masonite International Corp. (DOOR), and Duluth Holdings Inc. (DLTH).

SWK shares were unchanged in premarket trading Wednesday. Year-to-date, SWK has declined -15.89%, versus a -8.95% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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