Industrial distribution company Fastenal Company (FAST) is set to release its quarterly report this Thursday. With its impressive growth and solid results in the past, the expectations are high this time. Hence, I think it's an ideal time to scoop up shares of this company.
FAST performed well in fiscal 2022. It surpassed analysts’ full-year earnings and revenue estimates. The company also achieved $1 billion in annual international sales. From 2012 to 2022, FAST’s international revenues more than tripled.
Dan Florness, President and CEO of FAST, said, "Congratulations to our international teams for achieving the $1 billion revenue milestone and thank you for helping to make Fastenal a world-class supply chain partner."
Its net income has grown at a CAGR of 13.4% over the past five years, while EPS has grown at a CAGR of 13.6% over the past five years, respectively. Its revenue and EBITDA have grown at CAGRs of 9.7% and 10.1% over the same period.
Additionally, the company is committed to returning value to its shareholders through dividend payments and share repurchases. The company returned $949.10 million to shareholders in the last year, an increase from $643.70 million in 2021.
During the fourth quarter of 2022, the company returned $270.10 million to shareholders through dividends and common stock purchases, an increase compared to the $161.1 returned in the same period in 2021. The company recently paid a quarterly dividend of $0.35 on March 2, 2023.
FAST pays an annual dividend of $1.40. This translates to a yield of 2.66% at the current market price. Its dividend payouts have grown at a CAGR of 12.3% over the past three years. The company has raised its dividends for 24 consecutive years.
Additionally, the company added 62 new onsite locations in the previous quarter, bringing the total number of new onsite locations signed in 2022 to 356. Sales through onsite locations, excluding transferred sales, grew at a high-teens rate in the fourth quarter due to increased onsite operations and healthy business activity. The company aims to sign 375-400 onsite locations in 2023.
Moreover, its eCommerce business grew by 48.2% year-over-year and accounted for 20.1% of the total revenue. The company aims to expand its digital capabilities to enhance its business growth.
Furthermore, the stock has gained 11.3% year-to-date and 13.5% over the past six months to close the last trading session at $52.66. The stock is trading above its 50-day and 200-day moving averages of $52.43 and $50.26, respectively, indicating an uptrend.
Here’s what could influence FAST’s performance in the upcoming months:
Favorable Analyst Estimates
Analysts expect FAST’s revenue to increase 9.6% year-over-year to $1.87 billion in the fiscal first quarter that ended March 2023. Its EPS is expected to increase 7.5% year-over-year to $0.51 for the same quarter. Additionally, it has topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Moreover, FAST’s revenue is expected to rise 5.9% year-over-year to $7.39 billion during the fiscal year 2023. Its EPS is expected to increase 5.4% from the previous year to $1.99 for the current year.
Robust Financials
During the fourth quarter of 2022, which ended December 31, 2022, FAST’s net sales increased by 10.7% from the prior-year quarter to $1.70 billion, driven by higher unit sales in markets tied to industrial capital goods and commodities.
The company’s gross profit increased 7.8% year-over-year to $768.40 million, and its operating income rose 107% year-over-year to $333 million. Also, its net earnings increased 6.2% year-over-year to $245.60 million, while EPS came in at $0.43, representing an increase of 7.5% year-over-year.
Higher-than-industry Profitability
FAST’s trailing-12-month gross profit margin of 46.07% is 55.1% higher than the 29.70% industry average. Likewise, its 15.57% trailing-12-month net income margin is 139.7% higher than the industry average of 6.50%.
Furthermore, the stock’s trailing 12-month ROCE, ROTC, and ROTA of 35.03%, 23.77%, and 23.90% are higher than the industry averages of 13.83%, 7.02%, and 5.20%, respectively. Its trailing-12-month levered FCF margin of 8.59% is 110.6% higher than the 4.08% industry average.
POWR Ratings Reflect Steady Prospects
FAST has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. FAST is currently trading above its 50-day and 200-day moving averages, justifying its B grade in Momentum.
It also has a B grade for Quality, in sync with its high profitability.
FAST is ranked #37 out of 89 stocks in the Industrial – Equipment industry. Click here to access FAST’s Growth, Value, and Sentiment ratings.
Bottom Line
FAST has demonstrated strong growth in the previous fiscal year. The company's net income and EPS have also exhibited consistent growth over the past five years, which indicates a stable and favorable financial standing.
Moreover, the company has a history of increasing its dividend payments and common stock purchases, indicating that the company is performing well and has the financial ability to return more value to its shareholders.
Hence, I think the company might be an ideal buy ahead of its earnings release on Thursday.
How Does Fastenal Company (FAST) Stack up Against Its Peers?
While FAST has an overall POWR Rating of B, you might want to consider investing in the following Industrial – Equipment stocks with an A (Strong Buy) or B (Buy) rating: Compagnie de Saint-Gobain S.A. (CODYY), EnerSys (ENS), and L.S. Starrett Company (SCX).
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FAST shares were trading at $53.01 per share on Wednesday afternoon, up $0.35 (+0.66%). Year-to-date, FAST has gained 12.81%, versus a 7.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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