This dividend king is poised for a big rebound in 2024

By | December 24, 2023

21_06_10 A person holds his face while a computer shows stock losses in the background _GettyImages-1213023814

21_06_10 A person holds his face while a computer shows stock losses in the background _GettyImages-1213023814

Shares of Stanley Black & Decker (NYSE: SWK) are down about 50% from their 2021 highs. There are very good reasons for that, as you’ll learn below. But the company expects an incredible earnings improvement in 2024. Assuming it can deliver on this forecast, the stock could also see a big recovery. Here’s what you need to know.

Stanley Black & Decker dropped the ball

During the coronavirus pandemic, demand for the tools that Stanley Black & Decker produces has been quite high. It makes sense: People stuck at home took up home improvement projects to improve their living experience. Adjusted earnings in 2021 rose 30% from 2020 to reach a record $10.48 per share. As 2022 started, the company expected annual adjusted earnings to be between $12.00 and $12.50 per share, which would have been another record result.

A person holding his face while a computer shows stock losses in the background.A person holding his face while a computer shows stock losses in the background.

Image source: Getty Images.

That didn’t exactly go as expected. Instead, Stanley Black & Decker posted adjusted earnings of $4.62 per share. That was a drop of more than 50%. It’s not hard to see why investors found this troubling after the company set much higher expectations. Things have only gotten worse in 2023, with management now expecting full-year adjusted earnings to be between $1.10 and $1.40 per share. That would mean another huge drop and help explain the slump in stock prices.

The backstory for this weak performance is just as disturbing. High debt, slowing sales and weak margins all contributed. But Stanley Black & Decker has been working to get back on track by reducing debt, lowering costs and raising prices, among other things. The improvements are already starting to show in the company’s profits.

Stanley Black & Decker is improving quarter after quarter

Stanley Black & Decker is an industrial giant and you can’t turn a ship like that around in one go. It takes time, but the slow and steady progress is clearly visible. For example, the company’s adjusted gross margin has increased every quarter since bottoming out in the fourth quarter of 2022. The improvement is also huge, with adjusted gross margin rising from about 20% to 28%.

Meanwhile, the Dividend King (which has raised its dividend for 56 consecutive years) entered 2023 expecting adjusted earnings to be between zero and $2.00 per share. That has been reduced to $1.10 to $1.40 per share, indicating that the worst-case scenario was not even close to reality. Sure, the upside was cut, but the real risk for investors was that the bottom end fell out of the company, and that just didn’t happen.

SWK chartSWK chart

SWK chart

Meanwhile, looking ahead to 2024, Stanley Black & Decker has reiterated its previous expectations for adjusted earnings between $4.00 and $5.00 per share. That was a target used to justify the company’s turnaround plans, so it would be reasonable to expect management to be aggressive. But the company is well into that turnaround plan and is still supporting the range, which is a very good sign.

2024 could be a great year for Stanley Black & Decker

So it looks like 2023 will be the trough for earnings, which is worth noting. But the real outcome is likely to be the improvement that will come in 2024 if management can achieve the targeted adjusted profit margin. Assuming the company can earn $1.40 per share in 2023, the high end of the expected range, adjusted earnings will rise 285% in 2024 if they only come in at the low end of expectations ($4.00). The high end – ​​$5.00 – would lead to a 350% increase in adjusted profits. Wall Street will likely change its view of Stanley Black & Decker in a very positive way if any of these scenarios play out.

Should You Invest $1,000 in Stanley Black & Decker Now?

Consider the following before buying shares in Stanley Black & Decker:

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Reuben Gregg Brewer holds positions at Stanley Black & Decker. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This dividend king is poised for a big rebound in 2024 and was originally published by The Motley Fool

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