Kevin Farshchi
Kushal Chukkapalli
Melanie Tan
Bradley Coyne
March 17, 2015
AGENDA
Introduction
Business Overview
Industry Overview
Macroeconomic Review
Recent Financial Performance
Financial Analysis
Financial Valuation
Recommendation
INTRODUCTION
Holdings :
100 shares purchased at $85.20 on April 2013.
Currently value:
$144.23 per share (market value = $14,423)
 Innovator, manufacturer and marketer of tools and equipment,
diagnostics and repair, and system solutions for professional users
performing critical tasks.
 Founded in 1920 and headquartered in Kenosha, Wisconsin
 Products and ser vices include hand and power tools, tool storage,
diagnostic software, information and management systems, shop
equipment, vehicle repair solutions and ser vices in various
Industrial segments.
 Presence in more than 130 countries with 66% of sales in US .
Company Overview
Source: 2014 10-K Pages 4, 11, and 105
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
Company Overview
Source: 2014 Annual Report Page 1
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
BUSINESS SEGMENTS
Snap-on Tools Group
Commercial &
Industrial
Repair Systems &
Information
Financial Services
Company Overview
Source: 2014 10-K Page 4
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
CONTRIBUTIONS OF EACH SEGMENT
2014 Operating Earnings
19%
20%
32%
6%
Commercial &
Industrail group
Snap-On Tools
group
29%
2014 Net Sales
Source: 2014 10-K Page 104
Macro Outlook
30%
27%
Repair Systems &
Information group
Financial Services
Company Overview
Commercial &
Industrail group
Industry
37%
Company Prospect
Financial Analysis
Snap-On Tools
group
Repair Systems
& Information
group
Financial
Services
Valuation
BUSINESS OVERVIEW
Business Segments
Distribution Channels
Snap-on Tools Group
Mobile Van
Commercial and
Industrial
Company Direct Sales
Repair Systems and
Information
Distributors
Financial Services
E-Commerce
Company Overview
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
PRODUCTS AND SERVICES
Tools
•Hand tools, power tools, and tool storage products
•Majority of products are manufactured by Snap-on
Diagnostic and Repair Information
•Handheld and PC-based diagnostic products, service and repair
information products, diagnostic software solutions, electronic
parts catalogs, etc.
Equipment
•Solutions for the diagnosis and service of vehicles and industrial
equipment
•Wheel alignment equipment, tire changers, vehicle lifts, collision
repair equipment, brake service equipment, etc.
Financial Services
•Business loans and vehicle leases to franchisees
•Installment sales and lease contracts
Other
•Franchise fee revenue
Company Overview
Source: 2014 10-K Pages 6 and 7
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
PRODUCT AND GEOGRAPHICAL DIVERSIT Y
Product Diversity
Geographical Sales
14%
22%
21%
Tools
57%
Diagnostic and repair information
Company Overview
Source: 2014 10-K Pages 105 and 106
20%
Macro Outlook
66%
Equipment
Industry
United States
Company Prospect
Europe
Financial Analysis
All Other
Valuation
BUSINESS OVERVIEW
Competition
•No single company
competes with Snapon across all products
lines and distribution
channels
•Various Companies
compete in one or
more product
category and/or
distribution channel
•Genuine Parts
Company, Stanley
Black and Decker,
and W.W. Grainger,
Inc.
Company Overview
Source: 2014 10-K Page 10
Macro Outlook
Raw Materials and
Purchased Product
•Snap-on has secured
sufficient supply of
bar and coil steel to
meet demands
•Does not anticipate
experiencing any
significant impact in
2015 from steel
pricing or availability
issues
Industry
Company Prospect
Patents
•Snap-on relies on
patent protection to
protect its intellectual
property
•700 active or pending
patents in the U.S.
and 1,500
internationally
•Sales relating any
single patent did not
represent a material
portion of revenues in
the last three years
Financial Analysis
Valuation
MACROECONOMIC REVIEW
Foreign Exchange
• Significant international payment
obligations or receipts
denominated in foreign currencies
• Identifies naturally offsetting
positions and then purchases
hedging instruments
Economic
• Possibility of loss due to economic
instability in areas of the world
where Snap-on operates
• Inflation does not have a significant
impact on Snap-on
Company Overview
Source: 2014 10-K Page 54
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
MACROECONOMIC REVIEW
 Commodities – Inputs
 Snap-on is a purchaser of steel, aluminum, and natural gas
 Specialized alloys are available from a limited number of suppliers and exhibit price
and demand cyclicality
Company Overview
Macro Outlook
Source: : http://www.tradingeconomics.com, 2014 10-k, page 54
Industry
Company Prospect
Financial Analysis
Valuation
MACROECONOMIC REVIEW
 Commodities – Demand
 Prices of gasoline and other petroleum-based fuels
 Affect sales of auto vehicles and hence the demand for Snap -on’s repair
services
Company Overview
Macro Outlook
Industry
Source: http://www.tradingeconomics.com/commodity/gasoline, 2014 10-k, page 54
Company Prospect
Financial Analysis
Valuation
MACROECONOMIC REVIEW
 Vehicle Characteristics
 Affects frequency, type and amount of service and repair performed by technicians and the
number of working technicians
 Affects demand for Snap -on tools and other products
Company Overview
Macro Outlook
Source: http://www.cnbc.com/id/100940923, 2014 10-K page 54
Industry
Company Prospect
Financial Analysis
Valuation
INDUSTRY PORTER’S FIVE FORCES
Rivalry Among Firms: Medium
• No competitor exists that scales all operations
or products
• Various companies compete in one or more
product categories/distribution channels
Threat of Substitutes : Medium
• Many products are highly specialised but
some are standard tools and diagnostic
equipment
Barriers to Entry : Medium
• Patent Protection
• Global market can pose threat
• Need a unique and highly useful product to
break into and be successful within the
industry
Power of Buyers : Medium
• Other companies offer similar products and
equipment
• Mobile Van distribution is a unique and
desired feature for buyers
Company Overview
Macro Outlook
Industry
Power of Suppliers : Low
• Industry does not depend on any one supplier
• Raw materials are widely available
Company Prospect
Financial Analysis
Valuation
SWOT ANALYSIS
Strengths
•
•
•
•
Weaknesses
Technological Prowess – R&D investments
Customer Loyalty
Cost Advantages in many niche products
Financing segment helps in maintaining
franchisees
•
•
Inefficient foreign currency management
Success of mobile tool distribution business
depends on the success of its franchisees
Opportunities
•
•
Threats
Emerging markets and Geographical
Diversification
Invest more in R&D to maintain advantage
Company Overview
Macro Outlook
Industry
•
•
•
International competition is intensifying
Raw material and energy price
fluctuations/shortages
Weakening international economy
Company Prospect
Financial Analysis
Valuation
RECENT FINANCIAL PERFORMANCE
Raised
dividends by
20.5% to
$0.53 per
share
4Q earnings
of $145.2
million,
16.5% of the
sales
Fourth quarter
revenue of $857.4
millions, a 7.5%
increase from 2013
Company Overview
Macro Outlook
Source: CEO Nick Pinchuk’s statement in 2014 Q4 “Earnings call”
Industry
Company Prospect
Financial Analysis
Valuation
Source : Bloomberg : SNA US Equity
Company Overview
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
MANAGEMENT
 Nicholas T. Pinchuk – Chairman
and CEO
 Became CEO in December 2007
 President of Commercial & Industrial
Group from June 2002 to December
2007
 Focus on Coherent Growth
 Develop and expand professional
customer base in automotive repair,
adjacent markets, and additional
geographies
 Enhancing the franchise network,
expanding in the vehicle repair garage,
extending to critical industries, and
building in emerging markets
Company Overview
Macro Outlook
Source: 2014 Proxy statement Page 20,26, 2013 10-K Page 26
Industry
Company Prospect
Financial Analysis
Valuation
MANAGEMENT’S STRATEGIC
PRIORITIES
 Commercial & Industrial Group
 Invest in emerging market growth initiatives.
 Expand business with existing customers and reach new ones
 Tools Group
 Improve franchisee productivity, profitability, and commercial health.
 Develop new programs and products to expand market coverage and
penetration
 Repair Systems & Information Group
 Expand product offering with new products and services; increase
penetration in emerging markets
 Upgrade software and hardware

Financial Ser vices
 Deliver products and services that attract and sustain profitable
franchisees, improve productivity levels, and maintain a healthy portfolio
performance.
Company Overview
Source: 2014 10-K Page 27 and 28
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
VALUE CREATION PROCESS
Company Overview
Source: 2014 Annual Report Page 8
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
FINANCIAL ANALYSIS- RATIOS
Current Ratio
Quick Ratio
Liquidity Ratios
2010
2011
2.00
2.62
1.63
1.96
2012
2.83
2.15
2013
2.51
1.90
2014
2.59
1.92
Profitability Ratios
Operating Profit Margin
Net Margin
ROA
ROE
Debt/Assets
Interest Coverage
Debt/EBITDA
Debt/Capitalization
A/R Turnover
Days Sales Outstanding
Inventory Turnover
Inventory Days
Fixed Asset Turnover
Total Asset Turnover
Company Overview
Macro Outlook
2010
2011
2012
2013
2014
12.89%
6.96%
15.76%
9.28%
7.47%
18.19%
17.19%
9.88%
8.08%
17.74%
18.30%
10.82%
8.74%
19.37%
19.79%
12.08%
10.02%
18.68%
Leverage Ratios
2010
2011
31.39%
26.79%
6.31
7.67
2.87
1.89
0.31
0.27
2012
25.00%
9.55
1.64
0.25
2013
23.65%
10.56
1.49
0.24
2014
21.33%
13.07
1.21
0.21
Turnover Ratios
2010
2011
3.99
91.58
4.22
86.59
8.55
0.80
2012
3.70
98.58
3.89
93.87
8.51
0.82
2013
3.48
104.75
3.77
96.91
8.43
0.81
2014
3.49
104.63
3.71
98.39
8.76
0.83
Industry
Company Prospect
Financial Analysis
Valuation
FINANCIAL ANALYSIS- RATIOS
Greenblatt Ratios
EBIT/Tangible Assets
EBIT/EV
2010
2011
2012
2013
2014
17.14%
31.25%
31.82%
32.84%
39.86%
3.33%
4.61%
5.24%
5.83%
6.83%
45.00%
40.00%
35.00%
30.00%
25.00%
EBIT/Tangible Assets
20.00%
EBIT/EV
15.00%
10.00%
5.00%
0.00%
2010
Company Overview
Macro Outlook
2011
2012
Industry
2013
2014
Company Prospect
Financial Analysis
Valuation
DUPONT ANALYSIS
DuPont Analysis
2011
2012
2013
2014
Tax Burden
66.18% 66.14% 66.55% 66.80%
Interest Burden
88.96% 86.85% 88.84% 91.38%
Operating Profit
Margin
15.76% 17.19% 18.30% 19.79%
Asset Turnover
0.80
0.82
0.81
0.83
Leverage
2.51
2.25
2.03
1.93
ROE
Company Overview
18.72% 18.19% 17.74% 19.37%
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
Source : Bloomberg : SNA US Equity
Company Overview
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
VALUATION – DISCOUNT RATE
DISCOUNT RATE: WACC + PREMIUM
Capitalization
Total Debt
Total Common Equity
Total Capital
978.8
8383.2
9362.05
Shares outstanding
Current Price
Total market value of equity
58.1
$144.23
8383.25
Cost of Equity - CAPM Approach
Rf
Beta
MRP
E[R]
Realized Returns
2015
2014
2013
2.13%
1.31
5.00%
8.70%
Notes
Balance sheet debt + operating leases
As of 3/16/2015
10 year US T-bill
5 year weekly regression of returns
Country risk premium
29.97%
38.67%
34.34%
Cost of Debt
Cost of Debt
Tax Rate
5.42%
31.60%
Weighted average interest rate on debt
Management guidance from 10 K
Discount Rate Calculation
KE
WE
KD (After Tax)
WD
11.89%
89.55%
3.71%
10.45%
Blend of 85.0% E[R] & 15.0% 2015 Realized Returns
WACC
Business Risk Premium
11.04%
0.50%
Discount Rate
Company Overview
11.54%
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
VALUATION – DCF
Free Cash Flow Build
EBIT
Plus: D&A
Less: Taxes
Less: Capex
Less: Changes in NWC
Trade and other accounts receivable - net
Finance receivables - net
Contract receivables - net
Inventories - net
Deferred income tax assets
Prepaid expenses and other assets
Total Current Assets
Notes payable & current maturities of l-t debt
Accounts payable
Accrued benefits
Accrued compensation
Franchisee deposits
Other accrued liabilities
Total Current Liabilities
Working Capital
Unlevered FCF
Terminal Growth Rate
Discount Rate (WACC + premium)
Terminal Value
PV of Terminal Value
PV of FCF's
FY 2015E FY 2016E
719.5
767.2
61.7
65.8
(208.1)
(223.7)
(85.0)
(87.8)
FY 2019E Terminal
972.6
75.6
(288.9)
(75.6)
39.8
67.7
9.7
32.4
7.2
8.6
165.3
42.3
77.4
10.7
34.4
7.6
9.1
181.6
29.1
73.4
9.4
23.7
5.3
6.3
147.2
24.1
75.8
9.3
19.6
4.3
5.2
138.3
56.6
(10.3)
(3.8)
(7.1)
(4.7)
(21.3)
9.4
(159.64)
(10.3)
(6.0)
(12.8)
2.0
(21.2)
(48.2)
(117.09)
(110.2)
(10.9)
(4.2)
(7.9)
(4.5)
(22.5)
(160.1)
(21.46)
(90.9)
(7.5)
(2.9)
(5.4)
(3.1)
(15.5)
(125.3)
(21.88)
(9.9)
(6.2)
(2.4)
(4.5)
(2.6)
(12.8)
(38.3)
(99.92)
328.5
404.5
562.5
616.0
583.7
3.0%
11.54%
7,041.77
4,079.19
294.55
325.13
PV of FCF's
1,761.21
Macro Outlook
FY 2018E
940.8
73.2
(278.5)
(97.5)
50.5
61.0
9.0
13.4
7.7
8.7
150.3
Perpetuity Method
Company Overview
FY 2017E
860.3
70.2
(252.9)
(93.6)
Industry
405.41
EV
5,822.90
Company Prospect
398.01
Net Debt
786.5
338.12
Equity
Value
5,036.40
Financial Analysis
Shares
58.12
Price/Share
$86.65
Valuation
COMPANY COMPETITOR SET
Size & Capital
Structure
Dimension
Growth and
Competition
Dimension
Automotive
Dimension
Industrial
Distribution
Dimension
Tools Product
Dimension
Company Overview
Dover Corp (10% weight)
Danaher Corp (25% weight)
Genuine Parts Company (20% weight)
W.W. Grainger, Inc. (15% weight)
Stanley Black & Decker, Inc. (30% weight)
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
RELATIVE STOCK MARKET PERFORMANCE
SNA
Company Overview
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
TRADING COMPARABLES VALUATION
Company
EV/Revenue
Snap-on Incorporated
(NYSE:SNA)
EV/EBITDA
EV/Forward
Revenue
NTM EV/Forward
EBITDA
P/Diluted EPS
Before Ex
NTM Forward
P/E
2.6x
12.2x
2.66x
11.16x
20.2x
18.45x
Comparable Companies
Weight
Dover Corporation (DOV)
0.10
1.8x
8.9x
1.80x
9.15x
15.5x
15.02x
Danaher Corp. (DHR)
0.25
3.1x
13.6x
2.97x
12.78x
23.9x
19.86x
Genuine Parts Company
0.20
(GPC)
W.W. Grainger, Inc. (GWW) 0.15
1.0x
12.1x
0.96x
11.07x
20.8x
19.69x
1.6x
10.1x
1.55x
9.56x
20.4x
18.00x
Stanley Black & Decker,
Inc. (SWK)
1.6x
9.9x
1.59x
10.02x
17.7x
16.21x
$98.50
$131.55
$94.60
$138.65
$143.19
$140.51
0.30
Implied Price
Company Overview
Macro Outlook
Industry
Company Prospect
Financial Analysis
Valuation
PRICE TARGET
Stock Price as of 3/16/15
$144.23
Implied Share Prices:
Discounted Cash Flow
$86.65
EV / Revenue
EV / EBITDA
EV / Forward Revenue
NTM EV/Forward EBITDA
P/Diluted EPS Before Ex
NTM Forward P/E
$98.50
$131.55
$94.60
$138.65
$143.19
$140.51
Takeaways:
 Highly overvalued based on DCF
 Not one multiple is above the current stock price
RECOMMENDATION
SELL
100 shares
Limit Order @ $140 GTC
(69% Rate of Return)
THANK YOU!
Any questions?