Summary
- SWK posted very strong profits during an extremely challenging time in Q2.
- Guidance is strong for the remainder of the year considering the circumstances.
- I think margins will reflate quickly due to cost savings as volumes return, and the stock is fairly valued today.
The crisis that came to light earlier this year, and resulting selloff in financial markets, took a toll on many stocks. Those with consumer discretionary ties were hit the worst, and rightfully so, as shutdowns went into effect across the globe, crimping spending. However, some companies were physically impacted less than their share prices would imply.
One such example is Stanley Black & Decker (SWK), which saw its share price plummet from $172 to just $70 in the space of a couple of months. Shares have rebounded enormously since then, and trade at $159 today, but the stock has failed to reclaim its pre-COVID high.
While SWK looks fairly valued today, given the company’s hugely successful track record – including its Dividend King status – I think fairly valued is still a fine place to buy the stock.
Green shoots emerge
There is no denying that SWK’s Q2 was ugly. The company’s tools are used by a huge variety of customers – which is one of the things that I believe will help it recover from this crisis – but unfortunately, many of those customers weren’t buying in Q2.
The company’s product catalog includes budget, mid-grade, and high-end tools to cater to all kinds of customers. This means its customer base is highly diversified, a characteristic that has come about through years of careful planning, including acquisitions.
