SNA - Embedded Expectations Analysis - 2021 08 27
Snap-on Incorporated (SNA:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 15.1x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm, and management may have concerns about operating margins, organic sales growth, and the OEM project business.Specifically, management may lack confidence in their ability to improve their operating margin, sustain organic sales growth, and manage operating expenses. Moreover, they may have concerns about their OEM project business and the Asia Pacific macroeconomic environment. Furthermore, management may be exaggerating the impact of ZEUS on their diagnostics information systems and they may have concerns about the health of the auto repair market. Finally, they may lack confidence in their ability to sustain solid financial performance and maintain a favorable debt-to-equity ratio.
Snap-on is a manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions. Products and services include hand and power tools, tool storage, diagnostics software, handheld and PC-based diagnostic products, information and management systems, shop equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, such as aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical education. The company also provides financing programs designed to facilitate the sales of its products and support its franchise business.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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