Snap-on Earnings: Solid Sales and Profitability Growth Across All Segments in the Third Quarter

We are raising our fair value estimate 11% to $221 per share (up from $198). Our fair value increase is largely a result of our increasing appreciation for Snap-on’s SNA sales opportunity in a full EV world. The company continues to engage auto manufacturers that are looking to Snap-on to develop new tools to service EVs with. We think new products designed for EVs will help partially offset lost sales due to sunsetting engine and transmission repair work.

Snap-on reported solid third-quarter earnings, leading to a 2% intraday increase in the company’s shares. Following the earnings release, we raised our near-term sales and margin expectations. We’re more confident in the company’s ability to grow earnings. In our cash flow model, we forecast adjusted earnings per share in 2023 to grow by over 11% year on year, thanks to strong sales volume, slightly better pricing, and cost reduction efforts.

Overall, we were encouraged by the quarterly results. Each segment posted 3%-4% organic sales growth, thanks to stronger sales volume and pricing actions. Segment operating margins expanded 120-140 basis points, helped by cost reduction initiatives.

On valuation, we still view the company’s shares as overvalued by approximately 15%. We think the market is baking in stronger midcycle sales and margin estimates. On our end, we’re taking a more cautious approach to the future by baking in cyclicality into our estimates.

Regarding our long-term forecast, we now think Snap-on can grow sales by 4% on average compared to 3% previously. As we noted earlier, our thinking around Snap-on’s EV prospects has evolved. We believe the company’s relationship with auto manufacturers will pay off. In addition, we think Snap-on can win over more customers with its software and hardware products in the RS&I segment.