Stanley Black & Decker (NYSE:SWK) is one of the most exciting growth stories in the industrial sector. And as the headline suggests, this company is more than just its high-profile power tool retail sales to the DIY market. Stanley has a host of growth opportunities to help the company achieve its long-term aim of 10%-12% revenue and earnings growth. Here's five key reasons why and how.
Underlying power tools growth
First, let's start with DIY power tools. The following table breaks down Stanley's revenue by segment and its key product lines and end markets. Power tools are the company's most important product line, and Stanley has strong growth prospects through the ongoing development of key brands like Black & Decker, Craftsman, Stanley, and DeWalt. Those plans have been boosted by stay-at-home measures encouraging a surge in DIY activity in the home.
CEO Jim Loree believes Stanley's DIY power tools can continue to grow in the post-pandemic environment. Speaking on the earnings call, he said there is a "generation of people now that have become familiar with DIY" and noted the ongoing "urban exodus" into suburban and rural areas.
|Segment||Revenue 2020||Product||Key End Markets|
|Tools & Storage||$10.3 billion||Power tools and equipment, hand tools, accessories, and storage||DIY and professional tools across a wide range of industries|
|Industrial||$2.3 billion||Fasteners, fittings, rivets||Automotive, industrial, attachment tools, aerospace, oil and gas|
|Security||$1.9 billion||Electronic security systems, automatic doors, healthcare solutions||Retail, commercial, healthcare|
E-commerce means market share growth
At its recent growth summit event, management laid out a series of secular growth drivers, one of them being its e-commerce initiatives. It's no secret that the pandemic has helped accelerate the shift toward e-commerce from retail. Given that Stanley was an early first mover in e-commerce, the shift toward online shopping has increased its market share.
E-commerce-based revenue was "almost $1.8 billion," which rose 100% in the first quarter. Given that Stanley has "a 3:1 relative market share" in the global e-commerce channel, it's highly likely that Stanley can grow e-commerce sales (and overall sales) even if industry growth is flat.
During the growth summit, management outlined two key areas in which Stanley can benefit from electrification: The shift toward electric vehicles (EVs) from internal combustion engines, and the growth in electrical cordless outdoor products.
Concerning the EV transition, it's worth noting that the automotive end market (engineered fasteners) represents 36% of current industrial sales. Management believes Stanley's content per internal combustion engine vehicle is $10 per car, but its content per EV is likely to be a figure closer to $30-$60. As such, growth in EV production provides a significant growth opportunity for the industrial segment.
MTD and electrification of outdoor products
Stanley already has a 20% share in lawn and garden products company MTD and can acquire the remaining 80% -- an option that becomes active in July. Management believes the addition of MTD would be complementary to existing outdoor branded products (lawnmowers, leaf blowers) and would create an outdoor products powerhouse capable of taking full advantage of the trend toward cordless electric outdoor products.
In addition, Loree believes MTD could add $3 billion in sales in 2022, and there's a significant margin expansion opportunity too. Management outlined plans to expand MTD's operating margin from 6% in 2020 to 10% by the end of 2022.
Health & Safety
The last key growth driver comes from the electronic security market ($1.4 billion in sales in 2020). The pandemic and property-damaging protests in 2020 have combined to create a renewed sense of awareness around the need for healthy and secure buildings for employees and customers. That's an opportunity for Stanley's electronic security, door automation, and healthcare solutions.
Stanley Black & Decker
Putting it all together, Stanley's long-term aspirations for organic revenue growth of 4%-6%, reported revenue, and earnings growth of 10%-12% look achievable. The company's consolidation of the tools industry put it in a great position to benefit from the surge in interest in DIY during the pandemic, as did the early lead in the e-commerce market. MTD promises to be another excellent acquisition.
Wall Street analysts have Stanley growing revenue at a near 9% annual rate over the next few years. Throw in the MTD acquisition, and Stanley looks set for double-digit revenue and earnings growth over the medium term.