Stanley Black & Decker (SWK) is a machine tools company built on namesakes of - you guessed it - three individuals with the last names: Stanley, Black and Decker. Frederick Stanley started a hardware manufacturing company in 1843. Duncan Black and Alonzo Decker started a similar shop in 1910, becoming known for the world's first patent for a portable power tool. In 2010 the two companies merged to form what is today Stanley Black & Decker.

With this long history comes a wide assortment of brands, products and solutions. The construction and do-it-yourself segment - which generates roughly 50% of revenues - makes the typical hand-held tools like hammers, tape measures and flashlights along with the more exciting power tool brands of DeWalt, Porter-Cable and Black & Decker. The industrial segment - making up roughly a quarter or sales - is probably best known for its brand MAC tools, but it also operates in the fastening system and infrastructure solution segments as well. Finally, it might surprise some that the remaining 25% of Stanley Black & Decker's business is derived from security - ranging from locks and hinges on your front door to automatic doors in a bank, airport or storefront.

Assuredly Stanley Black & Decker covers an array of tools - but interestingly even if you want a new or improved product, you can submit an idea to the company's website.

Beyond the history and product collection, potential investors might also be interested in how the company has been rewarding shareholders. To this point, Stanley Black & Decker has a storied track record of dispensing dividend payouts - having not only paid but also increased its dividend for 46 consecutive years (ranking it 25th on the increase streak list). Over the last decade these increases have come in at a rate of just over 6%. Further, the company has a substantial portion of its authorized 20 million share repurchase program at its disposal. It seems being the leader in tools and storage has its benefits.

Yet that's not to suggest that Stanley Black & Decker is without risks. For instance, in a recent presentation management lowered their expected earnings guidance. This was likely due to many concerns such as stalling margins in the security segment, lower than expected demand in emerging markets and general economic spending worries. It's always prudent to take the positive aspects in step with the potential apprehensions. Let's now move on to the past operating results of the company.

14 Years of Growth

Stanley Black & Decker has grown earnings (orange line) at a compound rate of 6.8% since 2000, resulting in a $14+ billion dollar market cap. In addition, Stanley Black & Decker's earnings have risen from $2.22 per share in 2000, to today's forecasted earnings per share of approximately $4.95 for 2013. (Note that this expected earnings number can be found using the company's website and demonstrates a F.A.S.T. Graphs' subscriber's ability to modify expectations.) Further, as noted, Stanley Black & Decker has not only paid but also increased its dividend (pink line) for 46 straight years.

For a look at how the market has historically valued Stanley Black & Decker, see the relationship between the price (black line) and earnings of the company as seen on the Earnings and Price Correlated F.A.S.T. Graph below.

Here we see that Stanley Black & Decker's market price previously began to deviate from its justified earnings growth; starting to become undervalued during the most recent recession and coming back to fair value as of late. Today, Stanley Black & Decker appears in-value in relation to both its historical earnings and relative valuation.

In tandem with the earnings growth, Stanley Black & Decker's shareholders have enjoyed a compound annual return of 10.3% which is slightly above the 7.5% growth rate in earnings per share. This is a result of the P/E expanding from around 12.6 to today's mark closer to 16. A hypothetical $10,000 investment in Stanley Black & Decker on 12/31/1999 would have grown to a total value of $39,084.43, without reinvesting dividends. Said differently, Stanley Black & Decker's shareholders have enjoyed total returns that were roughly 2.5 times the value that would have been achieved by investing in the S&P 500 over the same time period. It's also interesting to note that an investor would have received approximately 3.1 times the amount of dividend income as the index as well.

But of course - as the saying goes - past performance does not guarantee future results. Thus, while a strong operating history provides a fundamental platform for evaluating a company, it does not by itself indicate a buy or sell decision. Instead an investor must have an understanding of the past while simultaneously thinking the investment through to its logical, if not understated, conclusion.

In the opening paragraphs a variety of catalysts and risks were described. It follows that the probabilities of these outcomes should be the guide for one's investment focus. Yet it is still useful to determine whether or not your predictions seem reasonable.

Sixteen leading analysts reporting to Standard & Poor's Capital IQ come to a consensus 5-year annual estimated return growth rate for Stanley Black & Decker of 12.7%. In addition, Stanley Black & Decker is currently trading at a P/E of 16.4, which is inside the "value corridor" (defined by the orange lines) of a maximum P/E of 18. If the earnings materialize as forecast, Stanley Black & Decker's valuation would be $131.64 at the end of 2018, which would be a 12.7% annualized rate of return including dividends. A graphical representation of this calculation can be seen in the Estimated Earnings and Return Calculator below.

Now, it's paramount to remember that this is simply a calculator. Specifically, the estimated total return is a default based on the consensus of the analysts following the stock. The consensus includes the long-term growth rate along with specific earnings estimates for the next two upcoming years. Further, the dividend payout ratio is presumed to stay the same and grow with earnings. Taken collectively, this graph provides a very strong baseline for how analysts are presently viewing this company. However, a F.A.S.T. Graphs' subscriber is also able to change these estimates to fit their own thesis or scenario analysis.

Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk treasury bonds. Comparing an investment in Stanley Black & Decker to an equal investment in a 10-year treasury bond, illustrates that Stanley Black & Decker's expected earnings would be 4 times that of the 10-year T-Bond Interest. This comparison can be seen in the 10-year Earnings Yield Estimate table below.

Finally, it's important to underscore the idea that all companies derive their underlying value from the cash flows (earnings) that they are capable of generating for their owners. Therefore, it should be the expectation of a prudent investor that - in the long-run - the likely future earnings of a company justify the price you pay. Fundamentally, this means appropriately addressing these two questions: "in what should I invest?" and "at what time?" In viewing the past history and future prospects of Stanley Black & Decker we have learned that it appears to be a strong company with reasonable upcoming opportunities. However, as always, we recommend that the reader conduct his or her own thorough due diligence.

Disclosure: No position at the time of writing.