Earnings Analysis: Fastenal

| About: Fastenal Company (FAST)
This article is now exclusive for PRO subscribers.

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) 2012-09-30 2012-06-30 2012-03-31 2011-12-31 2011-09-30
Revenues 802.6 804.9 768.9 697.8 726.7
Revenue Growth % (0.3) 4.7 10.2 (4.0) 3.6
Net Income 109.3 112.3 100.2 87.5 96.8
Net Income Growth % (2.7) 12.1 14.5 (9.6) 2.9
Net Margin % 13.6 14.0 13.0 12.5 13.3
ROE % (Annualized) 26.8 28.6 26.7 24.4 28.0
ROA % (Annualized) 23.2 24.5 22.9 21.0 24.0

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.


The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party's use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you're agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website analytixinsight.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.