Longbow Upgrades Black & Decker On 'Tool Fundamentals,' Capital Allocation

In a report published Wednesday, Longbow Research analyst David S. MacGregor upgraded the rating on

to Buy, with a price target of $130. The analyst expects the company to report strong 2Q results, while delivering above consensus EBITDA growth through 2016. "Our survey of power tool retailers indicates continuing strength likely. Strong FCF prospects are likely to fuel acquisitions/share repurchases that in turn can drive EBITDA beyond current consensus. On that basis, we feel shares have upside potential combined with multiple catalysts," MacGregor explained. Longbow's most recent survey of North American power tool distributors and retailers points towards high single/low double digit tool sales in the region, with respondents expressing confidence in growth continuing through 2H. Among the various catalysts expected by the analyst is the potential for 5 percent organic revenue growth for T&S in 2H, with expectations of an upside to that figure. In addition, Stanley Black & Decker intends to undertake M&A to drive growth, with the analyst expecting a deal worth $200-$500 million in 2H15. The company has also accelerated its share buyback program for 2015. Moreover, according to the Longbow report, "The fact that SWK is for the first time willing to discuss the possibility of a disposition of the troubled business is a positive for investor sentiment." "At current share price, investors enjoy optionality on various drivers including Security segment recovery/spin-out, recovery in emerging markets and recovery in the high-margin, deeply cyclical infrastructure business," MacGregor added.