Fastenal (FAST) continues to benefit from an improving economy. Sales in the fourth quarter jumped more than 20% over the same quarter in 2009, for instance.
Despite EPS missing the Zacks Consensus Estimate by a penny, analysts raised their estimates for full year 2011 and 2012. It is a Zacks #2 Rank (Buy) stock.
Although shares aren’t cheap on a relative valuation, the company has strong fundamentals including no long-term debt, strong free cash flow and superior return on equity.
Company Description
Fastenal is a leader in the wholesale distribution of industrial and construction supplies. It operates approximately 2,500 stores primarily in North America.
It is headquartered in Winona, Minnesota and has a market cap of $9.1 billion.
Fourth Quarter Results
Fastenal reported fourth quarter 2010 results on January 18. Net sales were up 20.3% year-over-year. Growth was strong across nearly every geographic region.
Gross profit as a percentage of total sales expanded from 49.9% to 52.0%. The company’s “Pathway to Profit” initiative has helped Fastenal improve profitability and transition it from a fixed to a variable cost structure.
Meanwhile, operating income surged 50.5% due to higher sales, gross profit and the leveraging of its fixed administrative and occupancy expenses.
Earnings per share came in at 44 cents, missing the Zacks Consensus Estimate by a penny. It was a 47% increase over the same quarter in 2009, however.
Outlook
Analysts have been raising their estimates over the last several months as the economy continues to improve and Fastenal puts up strong numbers:
Despite the small earnings miss in Q4, analysts actually raised their estimates higher for both 2011 and 2012.
The Zacks Consensus Estimate for 2011 is $2.24, representing 24% growth over 2010 EPS. The 2012 consensus estimate is currently $2.67, equating to 19% earnings growth.
It is a Zacks #2 Rank (Buy) stock.
The company plans to open between 150 and 200 stores in 2011, adding 6% to 8% to its total store count.
Dividend
Fastenal pays a dividend twice a year. It has raised it every 6 months since 2006.
It currently yields 1.7%.
Valuation
Shares trade at 27.9x forward earnings, a premium to the industry average of 16.3x. Despite the premium, its PEG ratio is still a reasonable 1.56.
Keep in mind that Fastenal carries no long-term debt and its return on equity of 21.2% is well-above the industry average of 13.2%.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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