Growth & Income: Fastenal Co. (FAST)

Fastenal Company (FAST) shares look expensive, trading at 28x 2010 consensus EPS estimates. However, given the company’s stellar growth prospects over the next few years, Fastenal’s P/E mulitple is reasonable.

Business

Fastenal operates as a wholesaler and retailer of industrial and construction supplies. It sells fastener products under two categories: threaded fasteners (nuts, bolts, nuts, screws, and washers) and miscellaneous supplies (paints, various pins and machinery keys, and concrete anchors). The company has over 2,300 stores.

Fastenal’s Pathway to Profit initiative was rolled out in April 2007 to alter the growth drivers of its business. The four-point plan includes the following: to continue growing its business at a similar rate with the new outside sales investment model; to grow the sales of our average store to $125,000 per month; to enhance profitability by capturing operating leverage in its stores; and to improve the efficiency of its inventory management system.

Growth and Income

The stock has a Zacks #2 Rank. Analysts are forecasting that Fastenal will grow its earnings per share 42.6% in 2010, 21.4% in 2011, and 21.3% per year for the next three to five years. Meanwhile, its stock offers investors a dividend yield of 1.6%

Second-Quarter Results

On July 13, Fastenal announced revenue rose 20.3% to $571.2 million. The company earned $0.47 per share, beating the Zacks Consensus Estimate by 6.8%. Fastenal has beaten the Zacks Consensus by an average of 11.0% in the last two quarters.

Estimates

In the last 30 days, the Zacks Consensus Estimate for 2010 is up 5 cents, or 2.9%, to $1.77, and the Zacks Consensus for 2011 is up 4 cents, or 1.9%, to $2.15.

Balance Sheet

Fastenal’s balance sheet looks solid. At the end of Q2, the company had about $221 million in cash and marketable securities and no debt. That translates to $1.50 in cash per share.

Additionally, the company continues to generate a considerable amount of cash. During the first six months of 2010, Fastenal generated $120 million in operating cash flow and $87 million in free cash flow.

Read the June 16 commentary on Fastenal.

Last Week’s Growth and Income Zacks Rank Buys

Abbott Labs’ (ABT) diverse business model enables the company to deliver a steady stream of revenue and earnings. This Zacks #2 Rank stock has a dividend yield of 3.6% and it trades at 12x 2010 consensus EPS estimates. Click here for a closer look.

Polaris Industries (PII) recently reported better-than-expected EPS for the second quarter. Polaris has now beaten the Zacks Consensus Estimate in the each of the last five quarters by an average of 14.1%. Click here to read more.

Eaton Corp.’s (ETN) better-than-expected second-quarter results were driven by continued strength in its end markets. The company also expanded its profit margins, which helped boost its earnings growth. Moreover, management anticipates solid global growth to drive its results in the second half of 2010. Click here for more details.

Qualcomm (QCOM) continues to benefit from consumers increasing their use of 3G devices to stay connected. This Zacks #2 Rank stock trades at 19x fiscal 2010 consensus EPS estimates and has a dividend yield of 2.0%. For a closer look, click here.

FASTENAL (FAST): Free Stock Analysis Report

About Rob Plaza 22 Articles

Affiliation: Zacks Investment Research

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