Stanley Black & Decker’s Tariff Mitigation Play: A Strategic Move to Unlock Value?

Investors seeking a tariff-resilient industrial play may want to take a closer look at Stanley Black & Decker (SWK). The company’s aggressive supply chain reconfiguration, pricing discipline, and $2 billion cost-savings program position it as a potential undervalued opportunity—if its execution risks can be managed. Here’s why now could be the time to consider buying.

Supply Chain Shifts: A 12–24 Month Gamble Worth Taking?

Stanley’s plan to shift 15% of U.S. supply chain costs out of China and into Mexico—a move aligned with USMCA trade rules—carries execution risks but offers significant rewards. By leveraging its existing 60% U.S. cost-of-sales footprint, the company aims to slash tariff exposure over the next two years.

The risks are clear: delays in retooling Mexican facilities, logistics bottlenecks, or rising labor costs could inflate near-term expenses. Management acknowledges this, noting the $0.75 EPS tariff drag in 2025 includes “timing lags” in realizing savings. Yet the reward is compelling: by 2026, SWK could eliminate roughly $900–$1,000 million in annual tariff costs, unlocking margin upside.

Pricing Power: Can Hikes Offset Tariffs—and Margin Pressures?

SWK’s high-single-digit price increase in April 2025—and a second hike planned for Q3—aim to neutralize the $0.75 EPS tariff hit. The strategy hinges on its brand strength: DEWALT’s dominance in professional tools gives SWK pricing power that rivals like Snap-on lack.

However, Q2 margins face a headwind from LIFO accounting, which could temporarily suppress earnings. Management estimates that freight inflation and inventory adjustments may add 20–30 basis points of margin pressure in the near term. Yet the long-term math is favorable: combined with supply chain savings, price hikes could deliver $0.45–$0.50 EPS relief by 2026, nearly offsetting the tariff drag.

Valuation: A 13.6x P/E Deal for a Margin Expansion Story?

At a forward P/E of 13.6x, SWK trades at a discount to its industrial peers, even as it targets 35%+ adjusted gross margins by 2026. The $2 billion cost-savings program—already 85% complete—is the key catalyst.

The stock’s valuation assumes risks like DIY demand softness (Tools & Outdoor sales are flat) and inventory overhang post-holiday season. But these are manageable:
- Innovation launches (e.g., cordless DEWALT tools) could drive mid-single-digit organic growth.
- Supply chain agility under USMCA could insulate SWK from future trade wars, boosting its “strategic asset” appeal to investors.

Why Buy Now?

The case for SWK rests on two pillars:
1. Margin Resilience: Even with tariffs, the company’s adjusted EPS guidance of $4.50 in 2025 implies a 17% margin improvement from 2024 levels.
2. Undervalued Upside: At $127/share (as of May 2025), SWK’s stock offers a 30% upside to a $165–$170 target if margins hit 35% by 2026.

While risks like delayed Mexico production or a sharp economic slowdown exist, SWK’s proactive strategy—combining cost discipline, brand strength, and geographic diversification—positions it to outperform in a volatile trade environment.

Final Take: A Tariff-Proof Play at a Bargain Price?

Stanley Black & Decker is not without near-term headwinds, but its long-term play is clear: reconfigure supply chains, leverage pricing power, and deliver margin expansion. With a 13.6x P/E and $2 billion in savings on track, the stock looks undervalued for a company pivoting from tariff victim to trade-war winner. For investors with a 12–24 month horizon, this could be a buy now.

Bottom Line: SWK’s strategic moves make it a compelling industrial pick—if you’re willing to overlook short-term noise for long-term value creation.