Here's Why Snap-On (SNA) is Becoming an Attractive Investment - Barron's
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Get Alerts SNA Hot Sheet
Price: $381.17 -1.33%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 2.5%
Revenue Growth %: +4.2%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 2.5%
Revenue Growth %: +4.2%
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Shares of Snap-On (NYSE: SNA) are moving higher today, following a positive article in Barron's over the weekend. The stock is 0.50% higher in morning trading.
Barron's notes that SNA earnings plummeted 43% in 2009, to $2.32 per share, and revs dropped 18% to $2.4 billion.
However, with profit margins widening over the last two quarters, analysts are now expecting a FY10 EPS of $2.86, and FY11 EPS of $3.58. Margins of 10.4%, in 2009, climbed to 11.1% in Q110 and 12.2% in Q210.
Analysts are also expecting a rally in the company's shares, which are currently trading at $47.16, to the mid-50s, and possibly closing in on their all-time high of $61.92 put up in May 2008.
The reason? With shares, trading at 13x FY10 EPS estimates, below their historic multiple of 15.4x, applying the new number will result in a stock price of $55.
SNA also pays out a $1.20 annual dividend, which yields 2.5% currently.
Snap-On is also the beneficiary of an aging auto market in the U.S., with about 40% of cars having been on the road 10+ years. The company derives 60% of their revs from the U.S., 25% from Europe, and 10% from emerging markets.
Barron's notes that SNA is also looking to the power generation and aerospace industries as possible areas of expansion. Trade schools for the certification of workers in the aircraft industry is helping to build brand loyalty early.
SNA will also see added profits from its financial services unit, which once sold their loans to CIT Group (NYSE: CIT) before they filed for bankruptcy protection last fall. Financial services is expected to generate 15% to 20% of profits in 2012. Short-term loans on big-ticket items garner an average interest rate of 16%, compared to a cost of capital at 6%. Loan losses have averaged 3.5% over the past two years.
With a recovering economy, widening margins, and growth into new fields, this may be one stock wedge into your portfolio.
Barron's notes that SNA earnings plummeted 43% in 2009, to $2.32 per share, and revs dropped 18% to $2.4 billion.
However, with profit margins widening over the last two quarters, analysts are now expecting a FY10 EPS of $2.86, and FY11 EPS of $3.58. Margins of 10.4%, in 2009, climbed to 11.1% in Q110 and 12.2% in Q210.
Analysts are also expecting a rally in the company's shares, which are currently trading at $47.16, to the mid-50s, and possibly closing in on their all-time high of $61.92 put up in May 2008.
The reason? With shares, trading at 13x FY10 EPS estimates, below their historic multiple of 15.4x, applying the new number will result in a stock price of $55.
SNA also pays out a $1.20 annual dividend, which yields 2.5% currently.
Snap-On is also the beneficiary of an aging auto market in the U.S., with about 40% of cars having been on the road 10+ years. The company derives 60% of their revs from the U.S., 25% from Europe, and 10% from emerging markets.
Barron's notes that SNA is also looking to the power generation and aerospace industries as possible areas of expansion. Trade schools for the certification of workers in the aircraft industry is helping to build brand loyalty early.
SNA will also see added profits from its financial services unit, which once sold their loans to CIT Group (NYSE: CIT) before they filed for bankruptcy protection last fall. Financial services is expected to generate 15% to 20% of profits in 2012. Short-term loans on big-ticket items garner an average interest rate of 16%, compared to a cost of capital at 6%. Loan losses have averaged 3.5% over the past two years.
With a recovering economy, widening margins, and growth into new fields, this may be one stock wedge into your portfolio.
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