Even industry leaders aren’t immune to economic downturns. Stanley Black & Decker (SWK), a dominant force in tools and outdoor equipment, has faced margin pressure as inflation and high interest rates squeezed demand. However, with a $2 billion cost-cutting plan, strategic market expansion, and signs of easing rate pressures, the company is positioning itself for a rebound. In today’s FA Alpha Daily, we explore how Stanley’s resilience and recovery strategy could unlock significant upside for investors.
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A company can dominate its industry, have strong brand recognition, and produce high-quality products, but that doesn’t make it immune to economic downturns.
When inflation rises and interest rates climb, even the best-run businesses can struggle.
Higher costs eat into profits, and if demand slows, passing those costs onto customers becomes difficult.
Margins shrink, earnings fall, and investors begin to question the company’s long-term outlook.
But cycles don’t last forever. Just as economic conditions shift downward, they eventually turn back up.
Companies that can weather the downturn, cut costs, and position themselves for recovery often come out stronger.
Stanley Black & Decker (SWK) has built a strong reputation in the tools and outdoor equipment market, with brands like Dewalt, Stanley, and Craftsman widely recognized for their reliability.
The rising inflation and higher interest rates in the last couple of years have put pressure on Stanley’s margins, leading to a decline in profitability.
The company sells to key industries like housing, construction, and manufacturing, all of which have slowed down due to increased borrowing costs and weaker demand.
These factors have made it difficult for Stanley to pass higher costs onto customers, leading to a drop in Uniform return on assets ”ROA” and overall earnings.
Before 2022, the company managed to get higher than 25% ROA consistently.
Despite these challenges, there are reasons to believe Stanley could see a recovery as economic conditions improve.
The Federal Reserve has signaled that interest rates may come down further in 2025, which would help revive housing and construction activity.
Lower rates make it easier for businesses and consumers to borrow money, increasing spending on home improvement, renovations, and new projects.
This could drive higher demand for Stanley’s tools and equipment, reversing some of the sales declines seen over the past couple of years.
The company is also aggressively cutting costs to offset margin pressures. It launched a $2 billion cost reduction program focused on improving efficiency, streamlining operations, and lowering expenses across the business.
Some of these savings are being reinvested in key brands to strengthen market share and fuel growth.
The strategy seems to be working, as Stanley has continued to gain market share with the Dewalt brand despite a tough economic backdrop.
Management expects these cost-cutting efforts to significantly improve margins in 2025, providing a clearer path toward recovery.
Beyond cost reductions, Stanley is positioning itself for long-term growth by expanding its international presence and rolling out new products.
The company is making a push into European markets, growing its footprint in Central Europe and Iberia.
This move is already delivering results, as Stanley managed to grow sales in Europe last quarter despite broader economic weakness.
New product launches are another key focus, with the Dewalt TOUGHSYSTEM 2.0 DXL storage lineup receiving strong customer demand.
These efforts should help the company to maintain a competitive edge and drive sales as end markets recover.
Not all of Stanley’s business segments have struggled. While housing and automotive sales have been weak, the company’s industrial tools business has benefited from strong demand in the aerospace sector.
With Boeing and Airbus increasing production, Stanley has seen higher orders for its industrial products.
The general industrial market is also stabilizing, with inventory destocking coming to an end.
As these trends continue, the company could see more balanced growth across its different business lines, helping offset any lingering weakness in housing and consumer spending.
The stock has taken a significant hit, trading well below its valuation in the past couple of years with 20.1x Uniform P/E.
Despite the valuations, Stanley has a clear plan to improve profitability and position itself for growth as market conditions stabilize.
The company’s focus on cost efficiency, brand strength, and geographic expansion should support a recovery in the coming years.
With the stock trading at a discount to its historical levels, investors willing to look beyond the near-term challenges may find Stanley an interesting opportunity as economic headwinds begin to ease.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research
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