It's Time To Snap Up Some Snap-on Stock Snap-on (NYSE: SNA) has a lot going for both in terms of its business and the stock. The company is a manufacturer, distributor, and service technician for tools, equipment, and diagnostic devices globally.

Snap-on Is A Great Play On Recovery

Snap-on (NYSE: SNA) has a lot going for both in terms of its business and the stock. The company is a manufacturer, distributor, and service technician for tools, equipment, and diagnostic devices globally. The company has exposure to the home, housing, industry, OEM auto, aftermarket auto, and tech sectors making it one of the most diversified and best-positioned company's on the market today. In our view, the "mixed" results reported in the Q1 earnings report are reason enough to like this stock. Add to that the dividend, the balance sheet, the outlook for revenue growth, and dividend growth, and this stock becomes a great buy for dividend-growth investors.

Snap-on Reports Mixed Results In Q1

Snap-on reported a mixed quarter but only one metric failed to impress. The GAAP earnings, despite growing double-digits in FQ1 2021, missed the consensus by a fairly wide margin. The miss is due to restructuring charges incurred in 2021 that weren't felt in 2020. That aside, there is nothing not to like about the report including the outlook for the year. The company refrained from giving formal guidance but comments to the effect revenue trajectory is positive and reopening efforts would underpin that trend.

The $1.02 billion in net consolidated revenue reported for 2021 is up 20.2% from last year but this is against a very easy comp. The two-year comparison, which execs say is more reliable, has the company revenue up 11% with sequential gains pointing to accelerating growth in the next quarter. The revenue beat the consensus by 960 basis points partially due to the impact of favorable FX transactions which added 180 basis points to the growth. On an organic basis, sales are up 16.3% YOY with solid gains in all four operating segments.

On a segment basis, the Snap-on Tools segment grew fastest at 27% net and 25% organic. The Financial Services segment grew 14% organic, Commercial/Industrial grew 9.5%, and Repair & Information grew 7.6%.

The takeaways for us are that revenue is growing and so are the margins. The restructuring costs are a one-off event, higher margins are something that could last indefinitely in light of current demand. Excluding the financial services segment, company margins expanded more than 330 basis points on a GAAP basis and 2000 basis points when adjusted. Operating margins also expanded, by 300 basis points, and drove solid results on the bottom line. The GAAP $3.50 in EPS is up 40% from last year and beat by $0.46 while the adjusted $2.60 grew a slightly less robust 36%.

You Can Bank On Snap-on's 2.15% Yield

Shares of Snap-on are yielding about 2.15% with shares at $238 and it is a payout you can bank on. Not only is the company paying out a low 40% of its earnings but the balance sheet has virtually no debt on it and cash flow is nearly 100% free. As of this quarter, the leverage ratio is running below 0.05X earnings with coverage in the range of 17X. Based on the payout history, earnings, and balance sheet we expect to see this company make a 12th consecutive distribution increase later this year and in the range of 15%.

The Technical Outlook: Snap-On Sets A New High

The Q1 report wasn't enough to spark a major rally in this stock but it is edging higher to set a new high. At this point on the chart, it looks like the stock is breaking out of a bullish consolidation but in slow motion. The indicators are consistent with upward movement so we are expecting to see momentum pick up. If so, we think this stock could go as high as $255 to $270 over the next couple of months.

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