Highlighted companies: Snap-on Inc. (NYSE:SNA)
Summary: In April 2005 Barron's went positive on Snap-on Inc. (SNA) based on new CEO Jack Michaels accelerating SNA's lackluster restructuring, improving operations, and utilizing dealers better; since then shares are up 55%. Q3 sales ($600m) were up 8% and EPS ($0.48) were up 33% and beat analysts' estimates of $0.43. At $47/share, they're trading at 21x 2007 estimated earnings of $2.30. The downside: A weakening economy could take a toll on industrial sales, and dealer sales have not picked up. SNA recently announced a $500m acquisition of ProQuest Business Solutions, which provides tracking software for car companies and dealers and fits well with Snap-on's diagnostic- and information-services group, but may pose "growing-pain" integration problems; conversely, its high-margin business could easily add 10-20 cents to earnings. Margins are up to 7.7% from 6%, but still have plenty of upside before hitting Michael's 10% goal. Bottom line: "If Snap-on can achieve a 10% operating margin, it's easy to envision the company earning north of $3 a share, and its stock climbing to the low- to mid-50s in the next year or so."
Related: Will ValueAct Capital Add Some Snap to Snap-On Inc. ?