By Sam Boughedda
A Deutsche Bank analyst downgraded shares of Stanley Black & Decker (NYSE:SWK) from Buy to Hold, reducing the firm's price target on the stock from $126 to $111 in a note to clients Wednesday.
The analyst said the stock is lacking a catalyst for reversal, with SWK shares down 46% in 2022.
"From a high level, 2Q earnings season generally met our expectations," said the analyst. "We had previewed widespread earnings beats, aided by very conservative management/consensus expectations, as companies faced China Covid lockdowns and continued supply chain and price/cost challenges. That said, there were a few exceptions - companies that unexpectedly slashed their full-year outlooks - and SWK certainly took the cake with a 45% cut to 2022e adj. EPS guidance. This occurred on a very hectic day of earnings for us, and so we have revisited our model and investment thesis - and after doing this, we have decided to downgrade the stock."
The analyst acknowledged that it was far from the ideal time to downgrade SWK shares after the stock underperformed its coverage universe significantly, both year-to-date and in 2021.
"A 'cheap' valuation has generally kept us from downgrading the stock up to this point, but following the big cut to 2022e adj. EPS guidance, the stock's NTM P/E multiple has shot up to 22x, representing a 17% premium to the MI/EE group median. And while it is not fair to compare SWK's valuation to peers given vast differences in cyclical dynamics (consumer vs. industrial), we do think that the current share price comes close to accurately pricing in a real trough EPS forecast," added the analyst.