Topic: Growth Stocks

Snap-On Inc. $37 – New York symbol SNA

SNAP-ON INC. $37 (New York symbol SNA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 57.4 million; Market cap: $2.1 billion; WSSF Rating: Average) makes hand and power tools for auto mechanics.

Like Genuine Parts, Snap-On should benefit from slowing new car sales and rising demand for repair and maintenance services. It also sells its products through a fleet of franchised vans that visit garages. This way, dealers can form long-term relationships with their customers. That gives it an advantage over competitors, and should help it keep paying its $1.20 dividend (3.2% yield).

Snap-On is also expanding overseas, which cuts its exposure to a slowing North American economy. It recently paid $15.1 million for 60% of a Chinese company that makes hand tools. Foreign operations now supply roughly 40% of Snap-On’s revenue.

In the three months ended September 27, 2008, Snap-On’s earnings rose 34.3%, to $0.94 a share (total $54.6 million) from $0.70 a share ($41.1 million) a year earlier. That’s partly due to savings from an ongoing plan to improve efficiency. Revenue rose 2.5%, to $697.8 million from $680.7 million. About 70% of the higher revenue was due to favorable foreign currency exchange rates.

Snap-On’s long-term debt of $500.6 million is just 40% more than one year’s cash flow, so it has plenty of flexibility to make more acquisitions or expand its current operations. The company also held cash of $118.3 million or about $2.00 a share.

The stock now trades at 9.1 times its likely 2008 earnings of $4.07 a share. Snap-On should continue to profit from the increasing complexity of new cars, and growing car ownership in developing countries.

Snap-On is a buy.

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