• Snap-on Tools - primarily sells tools to car mechanics via "van channel" (franchise-model); approximately $130m of EBITDA - MCapex
• Commerical & Industrial -  sells tools to commercial and industrial customers direct and through distributors; approx. $155m EBITDA- MCapex
• Repair Systems & Information - sells software and diagnostic systems to indpendent repair shops and OEM car dealers; approx. $210m EBITDA - MCAPEX
• Financial Serivces - wholly-owned finance sub that primarily finances tool purchases by mechanics - makes ~ 15% on $900mm assets or revenues of $135m less costs (before financing) of $50m or $85 pretax
• corporate - runs about $95m per year

These are good businesses, which collectively have a pretax ROIC of around 50% and are growing at a reasonable rate (maybe mid single digit).

We believe that the mispricing is being caused by the company electing to bring its finance company back on balance sheet.  Basically, SNA terminated its JV with CIT on 7/16/09 and since then has been providing financing for the majority of new loans.  As a result, approximately $900mm of previously off-balance sheet receivables came back on balance sheet and has obfuscated the true cash flow of the company.  This process will be essentially complete in 2011.

We think there are two ways to look at the valuation:

• TEV/(EBDIT-CAPEX) or $3,875/$485 or around 8.0x unlevered pretax earnings
• On a levered basis, interest expense is around $55mm, so pretax earnings after interest is around $430mm; this compares to an equity cap of $3,075mm or pretax cash yield of 14% or around 7x

Given recent transactions in similar companies, we think that the company is conservatively worth 10x pretax earnings on 2012 estimates (probably more) or around $75 per share (or 40%-plus higher than it is currently trading).

Please note that we currently have a long position in SNA common stock and may buy more or sell this entire position without any update on this website or any other .