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The 2009 merger that created the leading tool maker is still paying bottom-line dividends, even as the US housing recovery looms as a bullish catalyst.

Investors waiting for the stock market to come in to get a second crack at some of the 24 percentage points racked up since the October low could be waiting a while.

But if and when they do decide to jump back in, they should hope for timing half as good as that displayed by hand-tools leader StanleyWorks when it snapped up the power-tool maker Black & Decker in the fall of 2009.

The 22% premium paid in the deal proved to be quite a bargain. Just before it as announced, StanleyWorks shares traded near $45. Now Stanley Black & Decker (NYSE:SWK) is above $75, and poised to challenge last spring’s record highs, which are less than $2 away. Its odds of breaking through that ceiling look excellent.

That old Black & Decker unit saw organic growth of around 9% last year, while Stanley’s sales of nuts and bolts to automakers grew twice as fast. But the real driver of the stock has been the merger, which is delivering cost savings in excess of what was once envisioned. The company is forecasting earnings growth of 10% to 15% this year on a bump of just 1% to 2% in organic revenue.

Its bottom-line prowess hasn’t gone unnoticed. Last month, Barron’s quoted an analyst who said the stock could rise to $93 next year. Meanwhile, Bloomberg News has nominated Stanley Black & Decker as just the sort of company Warren Buffett might want to strap onto his US-focused value conglomerate.

Buffett is on record in anticipating a rebound in US housing. Stanley Black & Decker would benefit tremendously. It derives 16% of its revenue from new home construction and another 21% from repair and remodeling.

Commercial construction and industrials account for another 29% of the total, and could be additional growth drivers if domestic investment picks up after years of neglect and decay.

At less than 13 times current-year earnings—a bit below its long-run average—the stock is hardly overpriced, despite the recent plaudits.

But just as important as the multiple are the assumptions used by the company in arriving at its forecast. “We expect little help from global markets with recession conditions unfolding in Europe, no US residential construction rebound and slowing emerging markets,” noted the chief operating officer in regard to the earnings outlook in the January earnings report.

Since then, the US home construction market has in fact shown plenty of rebound signs, driven by demand for rental properties—witness the sharp gains in the share prices of homebuilders.

StanleyWorks’ assumptions about the slowdown overseas so far appear to be on track, but the going hasn’t been any worse than what’s already backed into the earnings forecast.

We keep hearing how record corporate profit margins are beginning to show signs of strain as commodity and labor costs rise—and that’s certainly a legitimate worry. But many well-managed industrial names like Tyco (NYSE:TYC), ITT (NYSE:ITT), and StanleyWorks are still finding ways to squeeze an extra penny or two of profit from every dollar in sales.

If growth picks up as the US economy goes through an overdue replacement cycle for housing and capital equipment, those record margins could march even higher alongside StanleyWorks shares.

Source: Stanley Black & Decker Powers Up