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Snap-On Is On The Mend

Will toolmaker Snap-On (SNA) snap out of it? The Street thinks not. But Steven Cohen, chief investment officer at Kellner DiLeo Cohen, one of the few bulls, believes Snap-On, the world's largest manufacturer of hand tools, storage units, and diagnostic gear for mechanics, is in a turnaround after its sales decline in 2004. The big jump in steel prices boosted costs, and the company was unable to pass them on, says Cohen. Standard & Poor's (MHP) stamped the stock a sell in early May. S&P sees sales growing only in the low single digits in 2005. But Cohen is unfazed: With the stock at 34, he thinks it's headed to 45, or 16 times his estimated 2006 earnings of $2.83 a share -- way above Thomson First Call's (TOC) consensus estimate of $1.91. The stock is trading at 21 times consensus 2005 forecast of $1.59. A new CEO, Jack Michaels, took over last fall. Evidence that a turnaround is afoot, notes Cohen, came in 2005's first quarter, when expenses fell -- and operating margins rose. Earnings of 40 cents a share, up from 33 cents last year, beat estimates. He expects current margins of 5.9% will jump to 10% (where they were in 2000) under Michaels' cost-cutting. Rival Black & Decker's (BDK) operating margin is 11.%.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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