THE STANLEY WORKS $33 (New York symbol SWK; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 78.6 million; Market cap: $2.6 billion; WSSF Rating: Average) makes a wide variety of hand and power tools for consumer and industrial users.
The tool business exposes Stanley to the cyclical home construction, renovation and automotive repair industries. However, the company is successfully expanding its building security operations, which now account for 35% of its revenue and 45% of earnings. Steady revenue streams from the security business should let Stanley keep paying its $1.28 dividend, which yields 3.9%.
In July, 2008, Stanley acquired Canadian-based Xmark Corp. for $48 million. Xmark makes radio frequency tags that help locate people and property. The company also paid $278 million for Sonitrol Corp., which provides security monitoring services to businesses in North America. These purchases should add $140 million to Stanley’s annual revenue.
Stanley can comfortably afford these purchases. Long-term debt of $1.2 billion is 46% of its market cap. It also held cash of $299.3 million or $3.80 a share. As well, it recently sold its laser leveling business for $205 million. The company plans to sell several other smaller businesses by the end of 2008.
In the third quarter of 2008, Stanley’s earnings fell 6.7%, to $0.98 a share (total $78.4 million) from $1.05 a share ($88.5 million) a year earlier. However, sales grew 1.2%, to $1.12 billion from $1.11 billion.
Stanley should earn $3.79 in 2008, and the stock trades at 8.7 times that figure.
Stanley Works is a buy.
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