Shares of Motley Fool Income Investor pick Snap-on
First, a brief recap of 2006 results released yesterday. Our recent Fool by Numbers will drive you through the quarterly details that were strong and came in ahead of analyst expectations. Full-year sales advanced 7.1% and included some benefit from the November acquisition of ProQuest's
Based on the adjusted number, Snap-on is trading at 24 times trailing earnings, and based off 2007 analyst expectations of $2.36, it's trading at about 22 times. It gets even better; I estimate that free cash flow for 2006 was just less than $2.80 per share. That's a price-to-free cash flow ratio of just over 18 times, and it should be even lower for 2007.
I still wouldn't characterize Snap-on as a steal at current prices, but the ProQuest deal should help further accelerate top-line growth. Meanwhile, cost-cutting initiatives and a focus on enhancing services provided to customers and franchisees have brought the company a long way from the early 2000s, when overly rapid franchise expansion and manufacturing miscues greatly diminished a brand that has existed since 1920.
Even with the recent stock run, the 2.3% dividend yield is decent and above the market average. I also like Snap-on's exposure to the professional automotive-service segment, which should grow faster than the do-it-yourself side of the business as vehicles become increasingly complicated and dependent on technology. That bodes well for Snap-on, since approximately 70% of its business is automotive-related. Peers including the divisions of Stanley Works
For related Foolishness:
Snap-on is a Motley Fool Income Investor recommendation. Want to get paid to invest? A free trial will show you how analyst James Early looks for the best dividend-paying stocks.
Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.