Is Stanley Black & Decker a Buy for 2023?

Is Stanley Black & Decker a Buy for 2023?

No one said investing was easy – a consideration that comes to mind if you’re thinking of buying stocks in them Stanley Black & Decker (SWK -0.78%). There’s no doubt that the company faces significant headwinds in the near term. At the same time, the restructuring plan promises a potential “self-help” path to significantly improving profits in a few years.

Here’s what you need to know if you’re thinking of buying stocks.

Some recent history on Stanley Black & Decker

To understand where Stanley is headed, it helps to look at his source, too. Stanley suffered cost pressures from tariffs, unfavorable foreign exchange movements, and an increase in the cost of commodities for several years prior to 2020 Note the decline in gross margin between 2018 and 2020.

However, its fortunes changed in 2020 when widespread lockdowns and stay-at-home measures due to the pandemic drove spending on home-related goods — good news for DIY tool makers Like Stanley. Look at the combination of growing revenue and gross margin from 2020 to 2022. Meanwhile, Stanley’s leadership in the e-commerce tools market has proven beneficial during this period.

data by YCharts.

What went wrong with Stanley Black & Decker in 2022

Avid readers will see gross margin begin to decline for the pre-2022 period – a result of higher raw material prices and the much-discussed supply chain difficulties in the economy.

Moving into 2022, investors were hoping for margin improvement while easing supply chain issues, while the integration of its acquisition of outdoor powerhouse MTD Products (lawn and garden products) promised to open up a complementary market for Stanley. Meanwhile, selling its businesses electronic security and access technologies (automated doors) to Securitas And the Boss It promised to help refocus the company on its core gadgets and outdoor products.

Unfortunately, what could go wrong, went wrong in 2022. Instead of seeing an easing of supply chains and a moderation in raw material prices, Stanley experienced persistent pressure and price hikes. Management, in turn, lowered its full-year earnings guidance over the year. In addition, bad weather has curtailed sales of outdoor products and, worst of all, rising interest rates have squeezed consumer spending and the housing market — bad news for Stanley’s DIY tool sales.

After starting the year projecting adjusted earnings per share of $12 to $12.50 in 2022, management in its latest guidance projected between $4.15 and $4.65.

Meanwhile, Stanley and other tool companies are struggling to reduce inventory as (organic) sales fell 5% in the third quarter and are set for mid-to-high single digit declines for the full year.

as discussed RecentlyStanley and its industry peers need to improve their inventory delivery rate. If not, there will be more pressure on margins and profits.

SWK Inventory Turnover Chart (TTM)

data by YCharts.

stock purchase status

Given the continued weakness in the housing market, there is potential for bad news in the near term. However, the administration does not stand still. To address disappointing supply chain and operational performance, It launched a plan to cut costs by a whopping $2 billion in three years, with $1 billion in cuts to be implemented in 2023 alone. Among the measures taken, Stanley will reduce its product range and the number of suppliers, fundamentally restructuring the supply chain.

Utilities and indirect spending will be cut along with the organizational layers. Many of these measures should have been taken by management previously, but may have stalled when sales picked up after mid-2020. To put the $2 billion in cost-saving measures into context, Stanley’s operating profit was $2.2 billion in 2021.

Should Stanley Black & Decker Buy for 2023?

If you can close your eyes and ears to the possibility of bad news in the near term and have confidence in management execution, stocks look attractive to investors. However, cautious investors will wait to see evidence that Stanley is effectively reducing its inventory and that its cost-cutting measures are paying off before buying aggressively.

me eminence He has no position in any of the aforementioned shares. The Motley Fool has and recommends positions at Techtronic Industries. The Motley Fool has a file Disclosure policy.

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