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Saturday, June 26, 2010

Black & Decker's Room for Improvement

The Wall Street Journal

Stanley Black & Decker's stock is in a vise.

Following a healthy rally, shares of the tool manufacturer have plunged 21% from their April high. One hit came from the economic scare in Europe. The company generates about a quarter of revenue in the battered single currency.

Meanwhile, Wednesday's dismal U.S. new-home sales have added to concerns that the housing market won't gain momentum, threatening demand for construction-related equipment and Bloomfield Township additions.

But now that Stanley has begun to integrate with Black & Decker, it has advantages that set it apart.

The company expects $350 million in annual cost savings from the deal. Even if revenue is well below expectations, that is sufficient to drive higher earnings. And in Latin America, where economies have been resilient, the acquisition gives Stanley scope to expand its business.

The company had just $100 million of annual sales in the region before the deal while Black & Decker had roughly $400 million.

Back home, stagnant home prices can't prevent repair and remodeling work indefinitely. Sooner or later, there will be demand for handyman services in Grosse Pointe. Dan Oppenheim of Credit Suisse says annualized U.S. spending on residential improvements is about $115 billion, compared with a peak near $145 billion in 2007. With the stock at just 8.8 times 2012 consensus earnings, even a modest sales improvement should set it free.