(By Kevin Donovan) Some long forgotten wag who was all thumbs told us a man is only as good as his tools. As dexterous investors, we like the multipurpose type, such as Stanley Black & Decker Inc. (SWK
), which is combining generosity to shareholders with strategic investment to create value.
The global toolmaker announced late Monday it was acquiring fastener maker Infastech for $850 million in cash from private equity owners and expected the purchase to be immediately accretive to earnings, adding as much as $0.35 per share in year three. The deal is expected to close in the fourth quarter of 2012.
Stanley Black & Decker said the acquisition should result in annual cost savings of $25 million by year three and be immediately accretive to EPS, with $0.15 per share added in the first year following the closing of the transaction.
The investment is not, excuse the pun, a "bolt-on" transaction, but part and parcel of the company's longer-term strategic plan. Infastech, based in Hong Kong, plays to SWK's goal of increasing the company's emerging market revenue share to 20%-plus by the middle of the decade. Infastech produces engineered mechanical fasteners for industrial, electronics, automotive, construction and aerospace end markets. More than half of Infastech's 2011 revenues were generated in the Asia-Pacific region. Stanley Black & Decker will combine Infastech with its engineered fastening platform and aims to generate about 40% of platform revenues from Asia.
The news comes on the heels of SWK's announcement last week that it was considering shedding other businesses while boosting its quarterly dividend 20% to $0.49 and authorizing buybacks of up to 20 million shares, or about $1.2 billion, using the current stock price.
Speaking of which, shares of Stanley Black & Decker are down 2.7% year to date, and with the dividend increase, the dividend yield is north of 3%. We expect both growth and dividend investors to be interested.
On a forward PE basis, Stanley Black & Decker shares trade at a multiple of about 10 on next year's earnings estimate, compared with 13.25 for the S&P 500. Applying the market multiple to next year's estimate of $6.39 gives us a price target of $85. In the last 52 weeks, SWK shares have traded as high as $81 and as low as $46.
The stock shot higher last week despite a second-quarter earnings report that missed analysts' estimates, largely because SWK told investors it was not taking things lying down.
It announced it had retained Goldman Sachs to advise management on the possible sale of SWK's Hardware & Home Improvement Group. With 2011 revenues of $940 million, the segment is a provider of residential locksets, hardware and plumbing fixtures marketed under the Kwikset, Weiser, Baldwin, Stanley, National and Pfister brands, among others. Stanley Black & Decker said the business was healthy and profitable but that its geographic orientation and long-term growth profile didn't fit with its strategic plan. The business is expected to fetch $1 billion or more.
Meanwhile, we're impressed with the company's actions in the face of a slow global economy. CEO John F. Lundgren said recently the company was confident "in the cash generation potential of the company for both the near term and the future." Add a growth strategy and we believe Stanley Black & Decker could fashion a multi-task tool for investors with multiple styles.