Oh Snap! Snap-On Incorporated Looks Appealing.

Sorry for the title folks, but I couldn’t think of a catchier one. Snap-On Incorporated (NYSE: SNA) is an $8.6B  company  that manufacturers and markets a wide range of tools, equipment, diagnostics, and repair information and systems  solutions for professional users across the globe. The company was founded in 1920 as Snap-On Wrench Company.

snaanalysis-au-09152016

In addition to the favorable metrics above, SNA also possesses the below positive qualitative factors:

  1. Consistent dividend payer: consistently paid dividends every year since 1939, without interruption or reduction. 2015 marks the company’s 6th consecutive year of dividend increases;
  2. Global presence: the company’s products and services can be found in approximately 130 countries across the globe;
  3. Small risk of obsolescence: as end-products become even more complicated and usage increases, tools will be needed to maintain, repair etc.;
  4. The company’s products occupy leadership positions in various segments;
  5. Snap-On’s products are used in a variety of industries;
  6. The company’s mobile stores are unique in the industry;
  7. Financial services division offers a ‘one-stop shop’ for customers;
  8. Snap-On’s debt is rated ‘A-‘ with a STABLE outlook, and
  9. Good mix of organic and bought growth.

However, I must highlight two risks which factor into the company’s operations and cannot be ignored:

  1. FOREX RISK:  the company’s global operations expose it to forex risk, as seen in 2015 with an unfavorable currency impact of nearly $160M to the top line.
  2. FINANCING RISK: any downward credit ratings adjustments could impact spreads on receivables.

SNA is currently trading at a trailing PE of 17 times and a forward PE of 15 times, with a dividend yield of about 1.6%.

While not cheap, I think SNA is a good long-term hold for the reasons highlighted above (I think the positive outweigh the negatives) and would also make an attractive acquisition for a bigger player (StanleyBlack&Decker or Berkshire Hathaway perhaps?). The stock is down about 13% for the year…I believe it may be worthwhile to ‘dip your toes in’ now and seek to add more on further short-term weakness.

What do you think of Snap-On?

 

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