Company Valuation Analysis: Stanley Black & Decker (Business & Marketing Research Paper)

Company Valuation Analysis: Stanley Black & Decker
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Company Valuation Analysis: Stanley Black & Decker
Introduction
Company valuation is the process of examining a business’s economic or current net worth (Drabikova & Svetlik, 2018). Over time, an institution may need to ascertain its value for different reasons, depending on the specific stakeholder who needs to use the information for decision making. For instance, the valuation may be necessary when considering an exit strategy, mergers and acquisitions, litigation support, and shareholder or partner disputes. In that case, it is fundamental to provide the basis for making a reliable decision. It is an essential business activity for companies across all industries, but more relevant for those that trade shares because of an expanded public interest. This paper focuses on the valuation analysis for Stanley Black and Decker, an American company that manufactures household hardware and industrial tools.
Brief Summary of Stanley Black & Decker
* History
The company’s history relates to Frederick Stanley, Alonzo Decker, and Duncan Black, who determined its current name. Frederick Stanley started it as a small shop in Connecticut’s New Britain in 1843 when it used wrought iron to manufacture hinges, bolts, and other hardware. It relied on consistent innovations and superior quality that significantly improved operations for excellent products. Alonzo Decker and Duncan Black later started a similar store in 1910 in Baltimore, Maryland, and obtained the first-ever patent six years later. In 2010, the two companies merged, under Stanley Black & Decker as its new name.
* Current Situation
Currently, the company is focusing on aligning critical priorities as it steers through an unprecedented period. While Stanley Black & Decker is supply chain partners and employees’ health and safety, it maintains financial stability and strength to attain a sustainable business continuity. Under the leadership of James M. Loree, the company’s chief executive officer has substantial cash on hand and a commercial paper program that is both robust and highly rated. Jaruzelski et al. (2018) note that its diversified and well-capitalized bank group backs the $3 billion revolving fund facilities. The company is undertaking efficiency and cost reduction programs to respond to the current uncertain environment. For example, Stanley Black & Decker reduces its non-essential staffing to cut down on payroll costs. Indeed, there is an anticipated demand disruption in the wake of the COVID-19 outbreak.
* Future Plans
The company plans to reduce capital expenditures and impose a temporary suspension on activities relating to acquisition until there is a positive demand prospect. It intends to be a world leader in innovation to remain strong in the highly competitive industry. From 2019, its three-year strategy was to achieve a 4% to 6% revenue growth through possible acquisition when it is confident of the demand sustainability. Besides, its projected earnings per share growth stand at 7% to 9%, with a free cash flow fully financed from the net income. Those notwithstanding, it aims to attain a continued dividend growth and a substantial investment credit rating.
Overview of Financial Conditions and Stock Price
* Summary of Financial Statements
Based on Yahoo Finance (2020), Stanley Black & Decker has had a constant growth in total revenues, reporting $12.7 billion in 2017 to $13.98 billion in 2018 and $14.44 billion in 2019. The last annual gross profit (relating to 2019) was $4.8 billion. The company has realized $796 million out of the $13.62 total revenue in the trailing twelve months. On average, its profit margin is 5.88% for the most recent quarter (MRQ). Besides, the debt to equity ratio 16 60.17%, while the current ratio is 1.26. the trailing twelve months’ operating cash flow stands at $1.36 billion.
* Trend and Peer Group Comparisons
In comparison to Stanley Black & Decker’s peers, it marginally trades at a premium. The company experiences a continuous growth. Its main competitors are General Electric (GE), United Technologies, and Honeywell. While Honeywell’s revenues are range-bound, GE has continuously reported declining revenues.
* Trends in Stock Price
Notably, at the close of the last financial year (2019), the company has earnings per share of $6.4, which was a growth compared to the $4.3 reported in the previous year. The total cash per share relating to MRQ is $5.38, whereas the book value per sha...