We’re adding Stanley Black & Decker (SWK) to the Club’s Bullpen — a collection of high-quality stocks we’ve identified as having the potential to join Jim Cramer’s Charitable Trust portfolio. Stanley Black & Decker is a global leader in hand-and-power tools, household hardware and engineered fastening. The company — whose most well-known brands include Stanley, Craftsman, Black + Decker, and DeWalt — earns about 85% of its revenues from its tools & outdoors business. The other 15% of sales comes from its industrial business, which makes fasteners for the automotive and aerospace industries, as well as equipment for infrastructure projects. The company has become a fallen angel of late, but it wasn’t always that way. Stanley was one of the big winners of the Covid-19 housing boom. Since homeowners were stuck inside and had more time on their hands, people began to take on Do-It-Yourself (DIY) projects using the company’s tools to improve the look of their homes and increase their value. By May 2020, the point of sale of Stanley’s tools was running 30% to 40% higher than 2019 levels, and online sales growth was even stronger than that. The surge in demand continued unabated, as the Federal Reserve kept interest rates at zero and many Americans moved out of cities to bigger homes in the suburbs. That forced Stanley to add capacity and new suppliers to keep up. The company delivered a record-breaking performance in 2021, earning $10.48 per share. But the pandemic-related surge proved to be unsustainable and demand cooled, leaving the company with too much excess inventory. Furthermore, high inflation, Russia’s invasion of Ukraine, and supply chain disruptions made for an increasingly challenging operating environment. The global semiconductor shortage constrained supply, while high freight costs ate into profits. Although the company’s revenues continued to grow in 2022 by 11%, earnings-per-share plummeted to $4.62. Since then, the company has tried to refocus its business around its core operations, divesting its electronic security, access technologies and oil-and gas-divisions — bringing in $4 billion and removing $500 million of overhead costs by the end of this year. Stanley also announced a series of initiatives last July aimed at generating more cost savings; prioritizing cash-flow generation and inventory optimization; streamlining and simplifying the organization; transforming its supply chain; and continuing to advance innovation, electrification and global market penetration to grow organically at a rate of two-to-three times its market position. In total, management aims to bring its gross margin up to 35% or higher by 2025, compared with a percentage in the low 20s in 2022. One lesson the company learned from the Covid pandemic is that having a supply chain that is too complex and long makes it prone to disruptions. To become more agile and resilient, Stanley is moving its supply chain closer to its customers, which will allow management to be more responsive to changes in demand and support innovation. The company expects to deliver approximately $1.5 billion in cumulative cost savings. After shares peaked slightly above $215 apiece in the spring of 2021, Stanley gave up nearly all it’s Covid-driven gains. The stock ultimately put in a floor in the low $70s a share late last year, and has since climbed to about $85 apiece as of Monday’s close. But it was quite the fall from grace for a company with a rich history of creating value and returning cash to shareholders. Indeed, Stanley is a so-called dividend aristocrat, meaning it has increased its dividend for at least 25 consecutive years. The company’s last quarterly dividend was 80 cents a share, putting its annualized yield at roughly 3.8%. Stanley is now about one year into its restructuring plan and has already made good headway. And at the same time, its end-market demand has been solid. At the Deutsche Bank conference on June 7, CFO Patrick Hallinan said Stanley’s tool business is tracking in line with his expectations as a result of stronger-than-expected new home construction, repair and remodeling in the U.S. There remains a significant imbalance in the market between housing supply and demand, with the U.S. housing market still short millions of homes. Stanley also stands to gain from a home improvement ethos that has bolstered Home Depot (HD) for years. It’s also become more challenging for homeowners to jump from house to house like they could a few years ago, due to higher mortgage rates — potentially forcing them to take on more DIY repair-and-remodeling projects to increase the value of their homes. That’s a theme we’ll be looking out for at the Home Depot 2023 Investor Conference on Tuesday, given the last element needed for Stanley to complete its post-Covid turnaround is a pickup in the DIY market. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Stanley Black & Decker drills are displayed for sale at a Home Depot store in Emeryville, California.
David Paul Morris | Bloomberg | Getty Images
We’re adding Stanley Black & Decker (SWK) to the Club’s Bullpen — a collection of high-quality stocks we’ve identified as having the potential to join Jim Cramer’s Charitable Trust portfolio.
