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Stanley Black & Decker Gets Wells Fargo Thumbs Up After Security Sale

Stanley Black & Decker was rated overweight with a $219 price target by analysts at Wells Fargo.
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Stanley Black & Decker's  (SWK) - Get Stanley Black & Decker, Inc. Report sale of its electronic security business, its thinnest-margin business, to Sweden's Securitas for $3.2 billion solidifies the iconic toolmaker's core, according to a bullish Wells Fargo note. 

The investment firm rates the New Britain, Conn., company overweight with a $219 price target, representing a nearly 17 times multiple to expected earnings. 

The target indicates 18% upside from the company's closing price on Tuesday. The stock was up 4.2% in 2021 through Tuesday's close. 

Shares of Stanley Black & Decker at last check jumped 4.6% to $194.62. 

"This move allows the company to dedicate more attention to the core businesses while taking advantage of a healthy valuation environment," Wells Fargo analyst Joseph O'Dea said. 

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The firm expects the sale to help 2022 earnings slightly or be neutral. But the company's operating margins stand to benefit as the security business was the Stanley Black & Decker segment with the thinnest profit margins. 

Revenue from the business is forecast at about $1.7 billion for 2021 with an adjusted Ebitda margin in the low double-digits percent. 

The company says it will use the proceeds from the sale to fund in part a nearly $4 billion share buyback program. That plan is slated to be completed in 2022. 

"We view SWK's about 30% relative valuation discount to EEMI and [the S&P 500] as attractive," O'Dea said.

"[This] outweighs concerns of a potential slowdown in tools and storage demand. SWK has flexibility to further optimize its portfolio in a meaningful way via a combination of divestitures and mergers and acquisitions."