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.
In addition to the favorable metrics above, SNA also possesses the below positive qualitative factors:
- 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;
- Global presence: the company’s products and services can be found in approximately 130 countries across the globe;
- Small risk of obsolescence: as end-products become even more complicated and usage increases, tools will be needed to maintain, repair etc.;
- The company’s products occupy leadership positions in various segments;
- Snap-On’s products are used in a variety of industries;
- The company’s mobile stores are unique in the industry;
- Financial services division offers a ‘one-stop shop’ for customers;
- Snap-On’s debt is rated ‘A-‘ with a STABLE outlook, and
- Good mix of organic and bought growth.
However, I must highlight two risks which factor into the company’s operations and cannot be ignored:
- 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.
- 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?