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Fastenal Co. (NASDAQ:FAST) reported preliminary financial results for the quarter ended 2012-09-30.

Fastenal Co. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last 12 months (unless stated otherwise).

Fastenal Co.'s analysis versus peers uses the following peer-set: W.W. Grainger Inc. (NYSE:GWW), MSC Industrial Direct Co. Cl A (NYSE:MSM), Bossard Holding AG (NYSEARCA:BOS), B&B Tools AB (BBTO.B), Techno Associe Co. Ltd. (8249-JP) and Coventry Group Ltd. (CYG). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)2012-09-302012-06-302012-03-312011-12-312011-09-30
Revenues802.6804.9768.9697.8726.7
Revenue Growth %(0.3)4.710.2(4.0)3.6
Net Income109.3112.3100.287.596.8
Net Income Growth %(2.7)12.114.5(9.6)2.9
Net Margin %13.614.013.012.513.3
ROE % (Annualized)26.828.626.724.428.0
ROA % (Annualized)23.224.522.921.024.0

Valuation Drivers

Fastenal Co.'s current Price/Book of 8.1 is about median in its peer group. Fastenal Co. achieved a better operating performance than the median of its chosen peers (ROE of 26.6% compared to the peer median ROE of 21.7%) and the market still expects faster growth from it than from those peers (PE of 32.9 compared to peer median of 9.8).

The company attempts to achieve high profit margins (currently 13.3% vs. peer median of 8.1%) through differentiated products. It currently operates with peer median asset turns of 1.7x. Fastenal Co.'s net margin is its highest relative to the last five years and compares to a low of 9.6% in 2009.

Economic Moat

The company enjoys both better than peer median annual revenue growth of 21.9% and better than peer median earnings growth performance 34.9%. Fastenal Co. currently converts every 1% of change in annual revenue into 1.6% of change in annual reported earnings. We view this company as a leader among its peers.

Fastenal Co.'s return on assets is above its peer median both in the current period (22.9% vs. peer median 12.5%) and also over the past five years (19.9% vs. peer median 9.9%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's comparatively healthy gross margin of 52.7% versus peer median of 19.8% suggests that it has a differentiated strategy with pricing advantages. Further, Fastenal Co.'s bottom-line operating performance is better than peer median (pre-tax margins of 21.4% compared to peer median 9.8%) suggesting relatively tight control on operating costs.

Growth And Investment Strategy

Fastenal Co. has grown its revenues faster than its peers (5.7% vs. -0.7% respectively for the past three years). The market also sees relatively higher long-term growth prospects for the company, giving it a better than peer median PE ratio of 32.9. Overall, we classify the company's growth prospects as superior relative to its peers.

Fastenal Co.'s annualized rate of change in capital of 8.5% over the past three years is higher than its peer median of 1.7%. This investment has generated an above peer median return on capital of 21.1% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

Fastenal Co. has reported relatively strong net income margin for the last twelve months (13.3% vs. peer median of 8.1%). This strong margin performance was accompanied by a level of accruals that was around peer median (-1.5% vs. peer median of -1.3%) suggesting that the reported net income is supported by a reasonable level of accruals.

Fastenal Co.'s accruals over the last twelve months are around zero. This level is also around the peer median suggesting a proper level of reserves.

Trend Charts

Company Profile

Fastenal Co. owns and operates industrial hardware supply stores. Its products include fasteners and other industrial and construction supplies. Fastener product line consists of two broad categories, namely, threaded fasteners and miscellaneous supplies. The company was founded by Michael M. Gostomski, Robert A. Kierlin & Stephen M. Slaggie in November 1967 and is headquartered in Winona, MN.

Disclaimer

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Source: Earnings Analysis: Fastenal