The Fastenal Company - Growth & Income
February 08 2012 - 7:00PM
Zacks
Estimates have been rising for
The Fastenal Company (FAST)
after it reported strong fourth quarter results, driven by a
stellar 22% increase in sales.
It is a Zacks #2 Rank (Buy) stock.
Analysts project this strong growth to continue
over the next couple of years. Based on consensus estimates,
analysts expect 21% EPS growth this year and 19% growth next
year.
On top of this, the company pays a dividend that
yields a solid 1.4%.
Company Description
Fastenal is a leader in the wholesale distribution
of industrial and construction supplies. It operates 2,585 stores
primarily in North America.
It is headquartered in Winona, Minnesota and has a
market cap of $14.4 billion.
Fourth Quarter Results
Fastenal reported strong fourth quarter results on
January 18. Net sales rose 22% year-over-year to $697.8 million,
ahead of the Zacks Consensus Estimate of $693 million. Same-store
sales (those open more than 2 years) grew an impressive 18%.
The gross profit did contract a bit, however, from
52.0% to 51.2%. But this was more than offset by a decline in
operating and administrative expenses, from 33.4% to 31.0% of net
sales. Operating income increased 32% year-over-year.
Earnings per share was up 36% over the same period
to 30 cents, in-line with the Zacks Consensus Estimate.
Outlook
Although EPS was in-line with expectations,
analysts raised their estimates going forward, sending the stock to
a Zacks #2 Rank (Buy). Analysts expect the company's strong
top-line growth to continue, leading to margin expansion and strong
double-digit EPS growth over the next couple of years.
The Zacks Consensus Estimate for 2012 is now $1.46,
representing 21% growth over 2011 EPS. The 2013 consensus estimate
is currently $1.74, corresponding with 19% growth.
Dividend
In addition to strong growth, Fastenal pays a
dividend that yields 1.4%. Going back to 2000, the company has
increased its dividend at a compound annual rate of 42%:
It generates strong free cash flow and has no debt,
so expect this dividend to continue climbing.
Valuation
Shares of FAST have climbed over 50% since early
October. This has led to an increase in valuation multiples as
well.
The stock currently trades at 32x forward earnings,
a premium to its 10-year median of 27x. Its price to book ratio of
9.7 is also above its historical median of 6.4.
The Bottom Line
Although it might not be a screaming value, the
stock could still show strong performance over the next few weeks
or months, particularly if economic data in the U.S. continues to
improve.
Todd Bunton is the Growth & Income Stock
Strategist for Zacks Investment Research and Co-Editor of the
Reitmeister Value Investor.
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