Categories Analysis, Industrials

A look at factors that make Snap-on (SNA) a compelling investment option

Performance has been positive in recent quarters, in terms of giving earnings surprises and returning value to shareholders

Snap-on Incorporated (NYSE: SNA), the century-old company that makes high-end tools for the automotive industry, is unlikely to have a smooth ride in the current quarter, given the deepening turmoil in the market due to the coronavirus epidemic. No surprises are expected when the company unveils its first-quarter results on May 7.

The stock has been quite stable and hovered near its peak in the past few years, but slipped to a multi-year low in the recent sell-off. Experts predict a notable recovery in the long term, which makes Snap-on an investment option worth considering. Overall, the market is bullish about the company’s future prospects, and hedge funds are showing increased interest in it.

Resilience

While it is too early to say whether the stock has bottomed out, there is enough reason to believe Snap-on would sail through the present turmoil and get back on track eventually.

Most analysts recommend buying the stock, which makes sense considering the relatively low valuation and solid fundamentals. The company’s performance was positive in recent quarters, in terms of giving earnings surprises and returning value to shareholders – marked by handsome annual dividend growth.

A Safe Bet

Those looking for a safe investment, including income investors, wouldn’t want to miss the opportunity, because not many companies offer such an option in these times of difficulty. Yet, there is risk involved in the company’s capital-intensive expansion plan, focused on international markets, at a time when uncertainty looms over the global economy. A prolonged slump will not be good for the company, which primarily caters to commercial entities.

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Signs of Fatigue

In recent quarters, sales came under pressure due to weak dealer performance in certain categories and unfavorable foreign exchange rates. Fourth-quarter profit dropped by a cent from the year-ago period but topped expectations. Meanwhile, net sales remained broadly unchanged and missed the Street view. The benefits of value-addition initiatives and contributions from acquired assets were more than offset by unfavorable currency exchange rates.

Growth Strategy

Going forward, Snap-on’s growth strategy will be centered on leveraging its prowess in the automotive repair segment, while also expanding customer base in the local market and globally.

After falling to a six-year low last month, the shares are currently on the revival path. The stock lost 33% in the past twelve months, after staying steady for several months. It has outperformed the S&P 500 index consistently over the years.

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