Sometimes the best time to buy a company is exactly when it is hardest to like the business, which is exactly the case with Stanley Black & Decker (SWK 2.56%) right now. But you can take comfort in the fact that management is predicting that 2024 will see an upturn on the bottom line. Here's what you need to know and why this iconic industrial company is a great place to invest $1,000 today.
The opportunity: Stanley Black & Decker's bottom line has been a disaster
In 2021, coming out of the COVID-19 pandemic, Stanley Black & Decker reported full-year adjusted earnings of $10.48 per share. That was a huge 30% higher than what it earned in 2020 and a record number for the company. To be fair, there were some extenuating circumstances. People were working from home and socially distancing, which likely resulted in more do-it-yourself home improvement projects actually getting done. You need the tools that Stanley Black & Decker sells to do that kind of work. Still, all told, 2021 was obviously a very good year for this industrial company.
Image source: Getty Images.
And then the wheels fell off. At the start of 2022, Stanley Black & Decker was projecting that full-year adjusted earnings would come in between $12.00 and $12.50 per share. That wasn't even close, with full-year adjusted earnings totaling just $4.62 per share. Management was way off the mark, but got straight to work trying to right the ship with a turnaround plan. Cost-cutting, right-sizing, debt reduction, and efforts to increase efficiency were all a part of that strategy.
All of that is good stuff, and exactly what you would expect the leadership team to do, but there was one big problem. The company was projecting another tough year in 2023, with full-year adjusted earnings guidance of between breakeven and $2.00 per share. In other words, a second down year in a row. The final result? Adjusted 2023 earnings per share of $1.45. Sure, management hit the top half of its target range, but that's still not a great number, and the trend is two big earnings declines in a row.
NYSE: SWK
Key Data Points
Stanley Black & Decker sees good things ahead in 2024
There's an old saying: That was then, and this is now. As management looks at the progress it has made on its turnaround plan, it believes that 2024 will end with adjusted earnings coming in between $3.50 and $4.50 per share. At the low end, that would be a 140% improvement, and at the high end, a 210% jump. If the company is close to the target on its projections, 2024 will be a big rebound year for earnings.
Given the multiyear downtrend, however, it is completely reasonable that Wall Street is in a "show me" mood when it comes to Stanley Black & Decker. The stock remains more than 50% below its 2021 high-water mark. That's where the opportunity lies, particularly if you are a dividend investor who likes companies with a strong history of reliably paying dividends.
Stanley Black & Decker is a Dividend King, with 56 consecutive years of annual dividend increases behind it. Notably, despite the recent troubles, the board has continued to boost the dividend each year. That speaks to both the long-term focus of the company and its belief that the current issues are temporary. Yes, the last two increases have been just $0.01 per share per quarter. That's little more than a token hike. But that's exactly what you would expect given the business's headwinds. The key is that the board hasn't faltered in its commitment to maintaining its Dividend King status.
Can Stanley Black & Decker actually turn its earnings around?
If Stanley Black & Decker can get earnings heading higher again, Wall Street will likely start looking at the stock more favorably. The fact that adjusted gross margin has been trending steadily upward, meanwhile, hints that the expectation of an earnings upturn is well supported. This industrial stock has been a work in progress and hard to love, but it appears that the inflection point has been reached and that an earnings rebound is about to show up in a potentially big way. If you don't own Stanley Black & Decker and its historically high 3.3% dividend yield, you might want to do a deep dive before first-quarter earnings come out.
