Management Change Doesn't Affect Argus' Expectations For Black & Decker's Dividend - Lowe's Companies (NYSE:LOW), Home Depot (NYSE:HD)

Argus maintains its Hold rating on

Stanley Black & Decker, Inc.SWK

, as it believes the shares of the company are fairly valued based on its dividend discount model and a comparison of peer and market multiples.

The firm noted that the company's second-quarter earnings per share of $1.84 rose 19 percent and exceeded the consensus and its estimates. Top-line growth of 2 percent also exceeded estimates, with strong organic growth, helped by both pricing and volume. The firm also noted that the company raised its 2016 earnings-per-share guidance, assuming strong organic growth in then tools & storage segment and tight cost controls. On the flip side, the company sees challenges from currency and low demand in the industrial business.

The company stated that its point of sale performance remained strong, and big-box inventories remain at lower than historical levels, which is suggestive that sales of retailers like Home Depot Inc HD and Lowe's Companies, Inc. LOW are solid obviating the need for reducing orders.

Management Changes

The firm is of the view that the company's emphasis in the near term will be to improve operations of its security business and maintaining an improved credit position, with secondary emphasis on repurchasing shares. The expectations are based on an impending management change, which will bring in James Loree to the position of CEO, replacing John Lundgren, who is set retire on July 31, 2016.

Possible M&A Activity On The Horizon

Argus analyst Christopher Graja believes the company will go with 50/50 allocation of capital between acquisitions and the return of cash to shareholders. The analyst also said the company may weigh options for its security business.

Estimates

Citing the better-than-expected second-quarter results, Argus raised its full-year 2016 earnings per share estimate by 10 cents per share on either end of the guidance range, with the revised estimate at $6.30–$6.50. However, the firm maintained its 2017 earnings per share estimate at $6.90.

The firm sees 10 percent CAGR in earnings per share over the next five years. Argus also did not rule out the possibility of accretion from potential acquisitions in 2017.

In terms of valuation, Argus noted that Stanley Black & Decker has returned 15 percent over the last 12 months compared to a 5 percent gain for the S&P 500 Index. The firm also noted that the shares are trading at 19 times its 2016 estimates and 17 times its 2017 estimates.

At time of writing, shares of Stanley Black & Decker were trading up 0.84 percent at $121.49.

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