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Deutsche Bank cuts Stanley Black & Decker stock rating to hold

Yahoo Finance anchors discuss Deutsche Bank's analyst stock rating for Stanley Black & Decker.

Video transcript

- Oh yeah. Cue the percussion music. We are taking a look at some of the calls of the day today, starting with Stanley Black & Decker. Right now, it's down by about 1 and 1/2% for shares after Deutsche Bank downgraded the stock to hold from buy after the hardware manufacturer cut its full-year adjusted earnings per share outlook by 45%.

This company had just in the end of July, tail end of July, the 28th, reported earnings there. And particularly what we had seen within that quarter as well, revenues were actually up 16% versus the prior year. But it was also led by some of the acquisitions that they had made in outdoor power equipment and price realization really accounting for that as well.

But going forward here as well for Stanley Black & Decker, they had seen the tools in outdoor demand soften during the last portion of the quarter. That perhaps something that Deutsche Bank is leaning into as well here. That could be a net bearish headwind for Stanley Black & Decker in the near term. Additionally, outdoor business experienced a very slow start to the course selling season due to poor weather.

- Yeah. We saw some weakness in commentary power tools within that Home Depot earnings call yesterday, noting seasonal categories were under pressure. Lowe's noting some weakness in seasonal categories. But I've covered Stanley Black & Decker I think for over 15 years now. And I have learned, just like Home Depot, and I said this yesterday, this is one of the best run companies that I follow, very much like a Home Depot.

New CEO Don Allen has been at the company for a long period of time. Was their former CFO. They just know how to operate and do things very well. They essentially own the power tools market, which was only solidified a couple of years ago when they bought the Craftsman brand off of dying, dead, and dusty Sears. So I get it. I get the call here by Deutsche Bank. I get the more cautious outlook. Inflation likely to weigh on this business. But this is a category leader. This is the type of thing or company you go back to when the dust settles a little bit.

- It's the question of, does the annexation or the title, I should say, of a category leader matter when you have gross margin for the quarter at 27 and 1/2% down 800 basis points from the prior year. Analysts don't care about who the market share leader is as much as they do about the actual results continuing to be passed through to your earnings per share.

And then, additionally, for any company that's carrying that free cash flow and expecting to use that free cash flow to help them navigate an economic headwind or downturn, that's what investors and analysts want to hear about from a company right now. But with the gross margins down as much as they were as price realization they said was offsetting commodity inflation, higher supply chain costs, lower volume, that particularly I think is what Deutsche Bank is latching on to here as well.

- Yeah. Fun fact for me real quick. I used my first chainsaw when I was eight years old.