Wednesday, October 7, 2009

Snap-On (SNA) Free Stock Report

My Stock Pick of the Week

Company Overview

Snap-On (SNA) is considered a mid cap value stock. They are a manufacturing hand tool and equipment company. Their dealer group supports more than 5,000 mobile dealer franchisees. The dealer group concentrates on visiting mechanics and selling or servicing products. They also have a commercial group selling tools and equipment.

Current outlook
Due to the current economic conditions SNA has struggled to meet earnings expectations and discovered its' high leverage and cost structure was un-attainable. SNA is now focusing on improved efficiency and higher profit margins to better suit their economic environment.

Future Outlook
SNA just terminated their agreement for customer financing through CIT and will now take on this segment themselves. Top management expects this segment to break even in 2010. This will help SNA because they can now control all aspects of their service. Manufacturing, selling, financing and servicing. They will also be able to generate revenue from their financing segment especially as interest rates increase. Due to the current recession if you have not already noticed new car sales have been decreasing and people are keeping their cars longer for many different reason, which may result in more demand for mechanics services and have a positive effect on demand for SNA's products.

Current P/E = 10.7: P/E Five year average = 20.2: If adjusts back to the 5 year average the stock price would be $65.5
Current P/S= 0.8: P/S five year average = 0.9: Based on P/S the stock should be trading at $39.36
Current P/B 1.6: P/B five year average = 2.1 Based on P/B the stock should be trading at $45.94

The average of the three is $50.27

Other Analyst
According to Morningstar, their intrinsic value for SNA is $50 with a 15% margin of safety low estimate would be $42.5 and high estimate would be $57.5. Morningstar suggests buying the stock around $35 and consider selling if it reaches $70

Possible Return
If you buy the stock now for $35/share and the stock does reach its' fair value estimate according to Morningstar of $50 your return would be (50-35)/35 = 42.86% "not including the current dividend yield of 3.5%."

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