BDK [Archive]

**dchamber** Tue Feb 21, 2006 8:46 pm

BDK
What do you think of BDK?
The P/E is 12.8 with a 10 year average of 15.
Current Ration is 1.5.
Avg. EPS growth over 10 years is 15.5%.
ROE is always over 20%.
Earnings took a dip in '01 & '02 but it looks like they are back in line.
Book value dropped a lot in 98 but it has been growth steadily since then.

**dahhuilaudavid** Fri Feb 24, 2006 7:41 pm

Black & Decker (BDK) at $83

What I like about Black & Decker:

1. Black & Decker has 40% of the North American power tool market.

2. Black & Decker will soon launch a new line of cordless tools, powered by a 36-volt lithium ion battery. With longer life and reduced weight compared with those using nickel metal hydride batteries, these tools are likely to drive a replacement cycle among high-end users.

3. Black & Decker moved the vast majority of its production to low-cost countries, including Mexico, China, and the Czech Republic.

4. CEO Nolan Archibald has been at the helm since 1986.

5. Improving net margin; from 2.5% (2001) to 8.3% (2005).

6. Improving return on asset; from 2.7% (2001) to 9.4% (2005).

7. Improving net income; from $441M (2004) to $544M (2005).

8. Improving free cash flow; from $244M (2001) to $593M (2005).

9. Massive share repurchase in year 2005; spending $525M which is equivalent to the whole year net income.

10. Superinvestors holdings: Muhlenkamp Fund (1.99% of assets), Oakmark Fund (2.1% of assets), George Soros (small holding).

What I dislike about Black & Decker:

1. Techtronic is getting more challenging.

2. Black & Decker's sales have been artificially inflated by the real estate boom occurring across much of the country.

3. Deflationary prices imposed by retailers, which average negative 2% a year.

Black & Decker’s Valuation:

P/E = 12.9
It has the lowest P/E ratio in the last 10 years.

Enterprise Value
= Market Cap + Total debt (interest paying) - Cash
= $6,680M + $3,826M - $967M
= $9,539M

Free Cash Flow
= Net operating cash flow – Net investing cash flow
= $628M - $34.6M
= $593M

Enterprise Value / Free Cash flow
= $9,539M / $593M
= 16X

Earning yield
= Operating income / Enterprise value
= $819M / $9539M
= 8.6%

Conclusion:
I think Black & Decker is fairly valued. It is not overvalued, and neither is it undervalued.

All the best,
Dah Hui Lau (David)
Feb 25, 2006
http://dahhuilaudavid.blogspot.com/