Key Takeaways

• Four of the five identified manufacturing peers of The Eastern Company — Wesco International, RBC Bearings Incorporated, The Timken Company and Stanley Black & Decker — have achieved some level of sustained stock price growth during the last half-decade as a result of their serial acquisition strategies, which markets have favored as means to consolidate share in what are often fragmented industry sub-segments.
• In tandem, analysts report that a similar four of the five analyzed comparables — HRBC Bearings Incorporated, The Timken Company, CompX International and Stanley Black & Decker — have enjoyed positive trending share price performance due to the "steady growth" and "consistent strength" of their revenue and/or earnings over the past five years.
• Meanwhile, in select cases, the fortuitous expansion of key customer segments, such as the renewables energy sector or do-it-yourself home improvement customers, has further enhanced the stock valuations of this comparable set for The Eastern Company.

Introduction

Lessons Learned

• Four of the five identified manufacturing peers of The Eastern Company — Wesco International, RBC Bearings Incorporated, The Timken Company and Stanley Black & Decker — have achieved some level of sustained stock price growth during the last half-decade as a result of their serial acquisition strategies, which markets have favored as means to consolidate share in what are often fragmented industry sub-segments.

• In tandem, analysts report that a similar four of the five analyzed comparables — HRBC Bearings Incorporated, The Timken Company, CompX International and Stanley Black & Decker — have enjoyed positive trending share price performance due to the "steady growth" and "consistent strength" of their revenue and/or earnings over the past five years.
• Meanwhile, in select cases, the fortuitous expansion of key customer segments, such as the renewables energy sector or do-it-yourself home improvement customers, has further enhanced the stock valuations of this comparable set for The Eastern Company.

1) Wesco International

• Based in Pittsburgh, PA, Wesco International (website link here) posted an annual revenue of $12.33 billion as of 2020 and operates as a diversified manufacturer of products ranging from electrical, industrial and communications equipment to OEM supplies.
• Under the stock ticker WCC, the company currently trades at a price of $113.26 per share, up from $54.20 as of five years ago (109% price increase).
• During the last half-decade, Wesco International's stock price rose by as much as 582%, from a low of $17.64 per share on March 16, 2020 to a high of $120.30 on August 23, 2021.

 

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• Analyst consensus across industry trades (e.g., Seeking Alpha) as well as Wesco International's local media (e.g., Pittsburgh Post-Gazette) suggests that the company's aggressive acquisition history is the primary driver behind its trending stock growth over the past five years.
• In particular, Wesco International won a bidding war for its former competitor Anixter in January 2020, which was considered a boon to the company and its attempt to assume greater market leadership in several largely fragmented industry sub-segments.
• This acquisition came after other notable deals, such as Wesco International's March 2016 acquisition of Atlanta Electrical Distributors.
• Meanwhile, the company's stock price has most recently benefited from environmental factors, including the pandemic and associated growth in commodity prices, which have enhanced Wesco International's earnings reporting and enabled it to "widely outperform market expectations."

2) RBC Bearings Incorporated

•  Oxford, CT-based RBC Bearings Incorporated (website link here) posted an annual revenue of $608.98 million this year as a manufacturer of bearing products to sectors including industrials, defense and aerospace.
• Under the stock ticker ROLL, the company currently trades at a price of $216.65 per share, up from $71.35 as of five years ago (204% price increase).
• During the last half-decade, RBC Bearings Incorporated's stock price rose by as much as 235%, from a low of $70.10 per share on October 17, 2016 to a high of $235 on July 25, 2021.

 

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• Interestingly, in a manner similar to Wesco International, a major driver behind the sustained stock price growth of RBC Bearings Incorporated is the company's merger and acquisition activity of late.
• Most notably, the company's stock price rose by as much as 21% to reach an all-time high in July 2021 after news broke that RBC Bearings International would acquire the mechanical power transmission business of ABB.
• This stock price jump followed a similar 16% spike in share value after RBC Bearings International announced its acquisition of Swiss Tool Systems in 2019, a deal that was viewed by markets as enabling the company to "further strengthen its customer base" without major integration hurdles, given the complementary operating structures of the two companies.
• Meanwhile, analyst coverage (e.g., The Motley Fool) indicates that more measured, sustained growth in the share price of RBC Bearings International over the past half-decade has been driven by the "consistent strength" of the company's various product lines/sales, even in cases where operating efficiency appeared to weaken.

3) The Timken Company

• Based in North Canton, OH, The Timken Company (website link here) reported an annual revenue of $3.51 billion as of 2020 as an "industrial leader" of manufactured products including power transmission supplies and engineered bearings.
• Under the stock ticker TKR, the company currently trades at a price of $70.66 per share, up from $33.05 as of five years ago (114% price increase).
• During the last half-decade, The Timken Company's stock price rose by as much as 243%, from a low of $26.60 per share on March 15, 2020 to a high of $91.33 on May 2, 2021.

 

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• Deviating slightly from the preceding peer comps, industry analysts (e.g., Seeking Alpha) assert that The Timken Company's trending stock growth "in the years prior to the COVID-19 pandemic" was driven by the "spectacular performance" of the company's management team, which expanded revenue at an annualized rate of 12.4% through both organic and inorganic investments.
• Markets were further encouraged by the company's accompanying profits, which jumped from $140.8 million in 2016 to $362.1 million in 2019.
• Separately, The Timken Company's expansion into the renewable energy sector in 2014 generated bullish commentary and resulted in an incremental boost to share prices over the past half-decade (e.g., Seeking Alpha, Stock News).
• Now accounting for the organization's second-largest source of revenue at 12% of sales, The Timken Company's renewables business has also been a key driver of share price increases since the pandemic, with business increasing by 50% since the start of the coronavirus outbreak, and with expectations that the unit's organic growth will remain in the "high single-digit/low double-digit range for the next 5 to 10 years."
• Meanwhile, the slight dip in stock price since the company's latest earnings reporting is viewed as an "overreaction" among market analysts, with industry trades (e.g., Barron's) continuing to assert that The Timken Company is poised to further expand share value as one of the most "undervalued" stocks.

4) CompX International

•  Dallas, TX-based CompX International (website link here) posted an annual revenue of $114.54 million as of 2020 as a manufacturer of security products.
• Under the stock ticker CIX, the company currently trades at a price of $21.20 per share, up from $11.15 as of five years ago (90% price increase).
• During the last half-decade, CompX International's stock price rose by as much as 125%, from a low of $10.90 per share on October 23, 2016 to a high of $24.54 on May 9, 2021.

 

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• Although there is relatively limited analyst discourse related to CompX International, industry trades such as Simply Wall St. (link 1, link 2) routinely highlight the company's "steady growth" as a key driver of the stock's sustained share price increases in recent years, adding that earnings per share at CompX International have risen by "2.4% on average over the last five years."
• In tandem, the value of CompX International stock has slowly risen amid investor interest in the stock's ongoing dividends, with shares of the company rising significantly this past March on news of the upcoming $0.20 dividend payment.
• In particular, the latest jump in share value appears to be driven by investor awareness that CompX International is distributing "less than half its earnings and cash flow" in the form of dividends, therefore providing "room to increase the dividend in time."

5) Stanley Black & Decker

• Based in New Britain, CT, Stanley Black & Decker (website link here) reported an annual revenue of $14.53 billion this year as a top provider of tools as well as engineered products for industrial and security customers, among others.
• Under the stock ticker SWK, the company currently trades at a price of $185.90 per share, up from $113.84 as of five years ago (63% price increase).
• During the last half-decade, Stanley Black & Decker's stock price rose by as much as 177%, from a low of $79.45 per share on March 16, 2020 to a high of $219.69 on May 3, 2021.

 

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• Somewhat mirroring Wesco International and RBC Bearings Incorporated, Stanley Black & Decker's share price has benefited over the last half-decade from its "ongoing consolidation of the tools industry and investment in lawn and garden product manufacturer MTD."
• Recent investments have included IguanaFix (2019), PilloHealth (2019), Evolve Additive solutions (2018) and VizExplorer (2016), with the company's initial 2018 investment in MTD recently culminating this past August in a full acquisition.
• Although the immediate market response to such investments has been mixed, with the company's share price dropping 2.4% on news of its decision to buy the remaining 80% of MTD, analysts have responded positively in the longer term to Stanley Black & Decker's accumulation of market clout and share through such expansion.
• Underpinning this inorganic growth strategy, investors have also favored the consistency of Stanley Black & Decker's earnings reporting and "five-year track record of earnings growth."
• As noted by Simply Wall St. the company expanded "earnings per share at 9.6% a year" over the past half-decade and is therefore viewed in "higher regard" among seasoned investors.
• Most recently, Stanley Black & Decker's stock price has also risen in response to the "well-documented surge in interest in DIY and home improvement," owing to the company's manufacturing of tradesman tools to both laymen and professionals.

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