'Hammer Time': 3 Reasons Why Credit Suisse Is Bullish On Stanley Black & Decker

Building products maker Stanley Black & Decker, Inc. SWK is best-positioned within the space and should grow from a combination of management-level initiatives and a strong macro environment, according to Credit Suisse.

The Analyst

Credit Suisse's Susan Maklari initiated coverage of Stanley Black & Decker with an Outperform rating and $170 price target.

The Thesis

For Stanley Black & Decker investors, it's "hammer time" for a number of reasons, Maklari said in the initiation note. (See her track record here.)  

The tool maker's team boasts an exemplary reputation of being able to offset inflationary pressures, the analyst said. Pricing contributed to 1 percentage point of organic growth in the second quarter, and this positive trend should continue into 2019, she said.

The company's focus on the strength of its brand allowed it to recover 75 to 85 percent of headwinds through pricing actions, with the remainder coming from improved productivity, Maklari said. 

The acquisition of new brands is yielding results faster than expected, the analyst said. The integration of Newell is mostly complete, and revenue synergies could add $100 to $150 million, she said. The Craftsman acquisition should generate $1 billion by 2027, faster than initial estimates, according to Maklari's projections. 

Stanley Black & Decker's guidance for $1.3 billion in cash flow in 2018 and $1.4 billion in 2019 is realistic and should satisfy investor demands for cash returns, Maklari said. The company has raised its dividend each year for the past five decades while also lowering the share count at a compounded rate of 2 percent since 2011.

The company's outlook is correlated to macroeconomic factors, and there is reason to believe macro fundamentals will remain encouraging, Maklari said. This translates to an uptick in demand for building products and also makes the case for higher pricing.

Price Action

Stanley Black & Decker shares were up 0.57 percent at $149.15 at the time of publication Monday. 

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