STANLEY BLACK & DECKER INC. $85 (New York symbol SWK; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 160.1 million; Market cap: $13.6 billion; Price-to-sales ratio: 1.3; Dividend yield: 2.4%; TSINetwork Rating: Average; www.stanleyblackanddecker.com) began operating in 1843 and is now one of the world’s largest makers of hand and power tools for consumers. Its top-selling brands include Stanley, Black & Decker, FatMax and Powerlock. In 2012, this business supplied 51% of Stanley’s sales and 50% of its earnings.

The company also makes specialized tools for industrial users, such as auto mechanics and construction firms. This division accounts for 25% of Stanley’s sales and 29% of its earnings.

The remaining 24% of the company’s sales and 21% of its earnings come from making building-security products, such as locks, automatic doors and gates. It also monitors properties for its clients, typically by closed-circuit audio and TV systems.

The recession cut Stanley’s sales by 15.6%, from $4.4 billion in 2008 to $3.7 billion in 2009. In March 2010, the company bought rival toolmaker Black & Decker in an all-stock deal worth $4.7 billion. Thanks to this purchase, Stanley’s sales shot up to $10.4 billion in 2011.

Earnings fell 19.6%, from $3.41 a share (or a total of $272.3 million) in 2008 to $2.72 a share (or $218.8 million) in 2009. Thanks to Black & Decker, earnings soared 307.2%, to $890.9 million, in 2011. Due to the extra shares outstanding, earnings per share rose at much slower pace of 92.6%, to $5.24.

In December 2012, the company sold its Hardware & Home Improvement operations, which make residential locks and related equipment, for $1.4 billion. As a result, its 2012 sales fell to $10.2 billion. Earnings also declined to $4.67 a share (or a total of $778.7 million).

Overseas expansion looks promising

Stanley continues to expand by acquisition. In February 2013, it paid $826.4 million for Infastech, a Hong Kong-based fastener maker that serves the automotive, electronic, construction and aerospace markets. Infastech should add $0.20 a share to Stanley’s 2013 earnings.

In May 2013, Stanley acquired 60% of Jiangsu Guoqiang Tools Co., Ltd., China’s third-largest power- tool maker. It paid $48.5 million for this stake.

In the second quarter of 2013, Stanley’s sales rose 11.9%, to $2.9 billion from $2.6 billion a year earlier. Acquisitions accounted for 7% of this increase. If you disregard costs to integrate recent purchases, earnings rose 1.0%, to $191.1 million from $189.3 million. Due to fewer shares outstanding, earnings per share gained 7.1%, to $1.21 from $1.13.

Stanley’s latest acquisitions will help it achieve its goal of increasing its sales in emerging markets, like Asia and Latin America, from 16% of its total sales in 2012 to 20% in 2015. It is also hiring more salespeople worldwide. These moves should lift its overall sales to $15 billion by 2015.

The company’s recent acquisitions are also helping cut its reliance on selling tools to consumers. That cuts its risk, especially as large retailers like Home Depot and Wal-Mart continue to pressure suppliers like Stanley to cut their prices, which hurts the company’s profit margins.

Savings fuel buybacks, dividend hikes

Growing-by-acquisition adds risk, as hidden problems with newly purchased businesses can take years to fix. However, Stanley has a long history of integrating acquisitions and making them more efficient.

For example, it should meet its goal of cutting $500 million from its annual costs following the Black & Decker purchase by the end of 2013. That’s 42.9% above its original target of $350 million.

The company is using some of these savings to buy back shares; it spent $24.8 million on share repurchases in the first half of 2013. It also raised its quarterly dividend by 2.0%, to $0.50 a share from $0.49. The new annual rate of $2.00 yields 2.4%. Stanley has paid a dividend for the past 137 years and has increased its payout each year since 1968.

Over the longer term, Stanley plans to apply half of its cash flow, after capital expenditures, to share buybacks and dividends. It will use the other half to fund more purchases of related companies.

Stanley can comfortably afford to keep making acquisitions. As of June 29, 2013, its long-term debt of $3.4 billion was a moderate 25% of its market cap. It also held cash of $561.7 million, or $3.18 a share.

Acquisitions have also pushed up Stanley’s goodwill and other intangible assets to $10.6 billion, or a high 78% of its market cap. So far, its success at integrating its new businesses has helped it avoid any major writedowns.

Reasonable p/e for a global leader

Stanley will probably earn $5.45 a share in 2013. The stock trades at 15.6 times that estimate. That’s a reasonable p/e ratio in light of the company’s strong brands and expanding international operations.

The company’s earnings could jump to $6.33 a share in 2014 as it realizes more of the benefits from its recent purchases. The stock trades at an attractive 13.4 times that estimate.

Stanley Black & Decker is a buy.