Inside Wall Street
WHAT WILL KEEP POWERING BLACK & DECKER
Shares of Black & Decker have been buoyant lately, reflecting the company's determined push to slash debt and jack up profits. The stock has risen to more than 25 a share from 19 in mid-January. But that, say some pros, is just the beginning of a major upswing in the stock of the world's largest manufacturer of power tools and home-improvement products.
"By next year, Black & Decker's engine will be operating full blast in Europe, Asia, and the U.S., and the company's strong earnings potential will then start showing up," says investment adviser Kemp Fuller Jr., a vice-president at New York investment firm RAS Securities. In addition to power tools, Black & Decker produces toasters, coffee makers, and garden and plumbing products. Fuller expects it to earn $1.20 a share this year, vs. last year's 81 . Next year's profits may go as high as $1.80, he figures.
Fuller sees the stock jumping as high as 32 a share this year and possibly climbing to the mid-50s in 12 to 18 months. He notes that Black & Decker had an easy time raising $464 million in a secondary stock offering at 23 a share on Apr. 24. The company will use the proceeds to pay off part of the huge debt it incurred in 1989 when it acquired Emhart, a maker of industrial and consumer products, for $2.7 billion.
GOOD OLD DAYS. The Emhart acquisition raised B&D's debt-to-capital ratio to 85%. It has paid down more than $1 billion since then through asset sales and issuance of $150 million of preferred stock. By the end of 1991, the company had cut the debt ratio to 74%. The money raised from the recent stock offering will bring that ratio to 63%. In mid-May, Black & Decker is spinning off its PRC Advanced Systems unit, from which it expects a profit of $64 million, or some 80 a share. With the PRC spin-off, B&D hopes to pull the debt-to-capital ratio down to 58%.
"Those transactions will alllow us to increase our capital investment in new products and manufacturing efficiencies and begin again to run Black & Decker as we did in 1987 and 1988, when we were growing twice as fast as the markets we served and faster than any of our competitors," says Black & Decker Chairman and CEO Nolan Archibald in a recent meeting with a group of portfolio managers and analysts. Archibald also said that sales--which run at $100 million annually--to one of Black & Decker's large customers, Home Depot, should jump to $500 million in the next few years. A Home Depot spokesman says the projection is in the ballpark.GENE G. MARCIAL