Fastenal Poised For Growth With Onsite Service, Digital Solutions: Analyst Predicts Double-Digit Annual FCF Expansion In Years

Stifel analyst Michael E. Hoffman reiterated a Buy rating on Fastenal Company FAST, raising the price target to $66 from $61.

The analyst writes that FAST has demonstrated it can be nimble, and its digital strategy, while structurally lowering gross margin, has driven operating income leverage.

The company has weathered the inventory destocking and repricing with better FCF and more stable profitability than many seers predicted, the analyst adds.

According to Hoffman, if the macro backdrop is at least less worse, if not outright at a turn to the better, and if so, it is a clear signal to own FAST.

FAST aims to operate 350 onsite locations for FY23, with 60% of sales via a digital footprint in FY23, with a long-term goal of 85%. 

If not for one less selling day in 3Q23, the gross profit margin would have been $10 million or 60bp higher at 46.5%, adds the analyst.

Hoffman believes Fastenal’s significant Branch network, combined with its unique Onsite service model, digital solutions, and high-touch service, should drive sustainable market share gains supporting low double-digit annual FCF growth over the next ten years.

FY24 gross profit is likely flat to slightly lower, but the EBITDA margin is likely up on lower cost to serve onsite versus branch locations, the analyst forecasts.

A neutral price/cost spread and continued change in product mix to lower margin onsite and non-fastener sales is a headwind to gross profit margins, Hoffman cautions. 

The analyst forecasts a 10-year FCF CAGR of 8.0%, assuming a long-term growth rate post 2033 of 8.0%.

Price Action: FAST shares are trading lower by 0.03% to $60.20 on the last check Friday.