Nailing Black & Decker

LOWER GEAR
Black & Decker (BDK ) (BDK) is hot in power tools. But Wall Street opinion on it is split. Of 15 analysts who track the company, seven rate it a "buy," including those from JPMorgan Chase (JPM ) and Merrill Lynch. Another seven are neutral. But one, Christopher Laudani, of Equity Research Online, rates it a "sell." In his Short Ideas report, Laudani says B&D "faces tough first-half comparisons with last year." Slowing sales growth is squeezing operating margins, and the Street, he adds, has "overly rosy [earnings] estimates." He thinks the stock, down from 94 in early May to 80.68 now, is worth 72. Merrill Lynch, however, sees it at 110 in a year. At present some 1.1 million B&D shares have been sold short, equivalent to 1.8 days of average trading. "This is one of the least shorted stocks in its industry," says Eric Bosshard of FTN Midwest Research, who is neutral on B&D. Laudani says acquisitions helped B&D double its sales in 2004 and 2005. But the "deal machine is winding down," he says, as is sales growth. He expects sales to rise just 2.9% this year vs. more than 20% in each of the past two. B&D spokesman Roger Young says 2006 sales will increase in the mid-single digits, reflecting the slowing housing market. "We forecast a modest improvement in operating margins, and an 8%-to-11% growth in per-share earnings." A consensus of analysts estimates B&D will earn $7.41 a share on sales of $6.8 billion this year. By contrast, Laudini expects $6.39 on sales of $6.7 billion, vs. $6.73 on $6.5 billion last year.

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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