SNAP-ON INC. $70(New York symbol SNA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 58.2 million; Market cap: $4.1 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.9%; TSINetwork Rating: Average; www.snapon.com) makes tools for auto mechanics and sells them directly through its fleet of franchised vans that visit garages. This unique sales model puts it in a great position to gain from rising car sales.
Right now, Snap-On is focused on expanding in Asia and other fast-growing regions, where rising prosperity is fuelling car demand. The company now gets roughly 40% of its revenue from overseas markets.
At the same time, Snap-On is investing heavily in other businesses that will cut its exposure to the cyclical car market. For example, it now makes specialized tools for mining companies, electrical power generators and aerospace companies.
In all, Snap-On will probably spend $60 million to $70 million on its growth initiatives in 2012.
These investments are starting to pay off. In the three months ended June 30, 2012, the company’s earnings rose 14.2%, to $76.4 million, or $1.30 a share. A year earlier, it earned $66.9 million, or $1.14 a share. Revenue rose 1.5%, to $737.9 million from $726.7 million. The high U.S. dollar held back sales in the latest quarter. On a constant-currency basis, revenue rose 4.5%.
Snap-On’s long-term outlook is bright. Increasingly complex automotive technologies, such as hybrid and electric engines, should spur demand for new, specialized tools. Moreover, ongoing efforts to improve its productivity should save it $30 million in 2012.
The stock is up 39% since the start of the year. Even so, it trades at a reasonable 13.7 times the $5.10 a share that Snap-On should earn in 2012. The $1.36 dividend yields 1.9%.
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