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Snap-on Incorporated

Snap-on Incorporated. Michael DeRenzo Dan Kleeman Charlie Penicook. October 31, 2013. Agenda. Introduction Company Overview Macroeconomic Outlook Relevant Stock Market Prospects Financial Analysis Valuation Recommendation. Snap-on in RCMP & Company Overview. RCMP Holding.

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Snap-on Incorporated

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  1. Snap-on Incorporated Michael DeRenzo Dan Kleeman Charlie Penicook October 31, 2013

  2. Agenda • Introduction • Company Overview • Macroeconomic Outlook • Relevant Stock Market Prospects • Financial Analysis • Valuation • Recommendation

  3. Snap-on in RCMP & Company Overview RCMP Holding • April 2013: Purchased 100 shares @ $85.20 • Founded in 1920 and headquartered in Kenosha, Wisconsin • Snap-on operates in four primary business segments • Commercial & Industrial Group • Snap-on Tools Group • Primarily serves vehicle repair technicians • Repair Systems & Information Group • Other professional vehicle repair customers • Financial Services • Serves customer base across other business segments • Distributes product line to over 130 countries with a very diversified product base Snap-on Incorporated Source: Capital IQ, Form 10-Q 2Q 2013 page 5-6 Company Overview MacroOutlook Stock Market Prospects Financial Analysis Valuation

  4. Sales Composition 2012 Net Sales & Operating Earnings Geographical & Product Sales Source: MULTPLE PAGES Company Overview MacroOutlook Stock Market Prospects Financial Analysis Valuation

  5. Company Overview Management’s Outlook • Snap-on’s value creation process • Safety, quality, customer connection, innovation & rapid continuous improvement • Currently focused on geographic and customer diversification • Emerging markets & critical industries (e.g. expanding franchisee network, vehicle repair garage) • Focused on expanding global financial services operations to improve financing options franchisees and customers • Management expects financial services to continue to have a meaningful impact on overall operating earnings Source: Form 10-Q 2Q 2013 page 4 Company Overview MacroOutlook Stock Market Prospects Financial Analysis Valuation

  6. Macroeconomic Outlook LME Steel Billet Global Projected Automotive Revenues 3-month Steel Futures Price • Steel is the largest raw material input that goes into Snap-on’s product lines • Global price of steel has been in decline over the past two years • Current steel prices are favorable for Snap-on’s COGS • Automotive exports projected to grow through 2018 • Expected expansion of production capacity in emerging markets • Growth potential in new automotive sales and automotive repairs Source: Bloomberg Terminal, IBISWorld Industry Outlook Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  7. Porter’s five forces Source: IBISWorld Operating Conditions Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  8. Understanding Market Power Source: MarketLine Industry Analysis Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  9. Financial Analysis - Ratios Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  10. Financial Analysis – Dupont Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  11. Snap-on Dividend Stability • Snap-on has not missed a quarterly dividend payment since 1939 • Annualized dividend growth rate of 4.83% from 1985 - present Source: Yahoo! Finance

  12. Recent Stock Performance 20 & 200 Day Moving Average Stock Chart • Snap-on’s stock price has consistently been above the 200 day moving average • While the stock has fallen below the 20 day moving average several times over the past couple months, the stocks continued rally suggests an overall up trend Source: Yahoo! Finance Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  13. Valuation – WACC Calculation Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  14. Valuation – DCF Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  15. Valuation – Comparables Company Analysis Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  16. Comparables Stock Chart • Snap-on’s recent stock performance has been well above its peer group average and the return on the S&P 500 • Snap-on’s stock movement is highly correlated with the global manufacturing output and the overall global economic growth Source: Yahoo! Finance Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  17. Alternative DCF Calculation • A large portion of Snap-on’s long term debt is directly attributable to the expansion of the financing division • Snap-on finances the growth of its financing division through its long-term debt • As Snap-on grows its financing division, its accounts receivables must grow proportionally

  18. Alternative DCF Calculation Continued

  19. Decision Drivers • Strengths • Extremely diversified product base • Good positioning of procurement of raw materials • Great growth prospects for financing arm • Strong dividend history • Poised to capitalize on global manufacturing prospects • Concerns • Anemic growth in emerging markets and Europe where Snap-on has either a larger portion of its current sales or is looking to expand • Credit risk from financees • Drastic improvements in diagnostic technology from competitors • Leverage concern for financing arm Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  20. Recommendation • Valuation • Current Price $101.34 per share • Analyzed Price: • DCF Valuation: $74.31 - $85.94 • Comps Valuation: $103.65 • Weighted Valuation: $94.24 • Recommendation • HOLD Company Overview Macro Outlook Stock Market Prospects Financial Analysis Valuation

  21. Questions

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