Fastenal - Growth & Income

Fastenal (FAST) shares look expensive, trading at 28x 2010 consensus EPS estimates. However, given the company's stellar growth prospects over the next few years, Fastenal's P/E mulitple is reasonable.

Business

Fastenal operates as a wholesaler and retailer of industrial and construction supplies. It sells fastener products under two categories: threaded fasteners (nuts, bolts, nuts, screws, and washers) and miscellaneous supplies (paints, various pins and machinery keys, and concrete anchors). The company has over 2,300 stores.

Fastenal's Pathway to Profit initiative was rolled out in April 2007 to alter the growth drivers of its business. The four-point plan includes the following: to continue growing its business at a similar rate with the new outside sales investment model; to grow the sales of our average store to $125,000 per month; to enhance profitability by capturing operating leverage in its stores; and to improve the efficiency of its inventory management system.

Growth and Income

The stock has a Zacks #2 Rank. Analysts are forecasting that Fastenal will grow its earnings per share 42.6% in 2010, 21.4% in 2011, and 21.3% per year for the next three to five years. Meanwhile, its stock offers investors a dividend yield of 1.6%

Second-Quarter Results

On July 13, Fastenal announced revenue rose 20.3% to $571.2 million. The company earned $0.47 per share, beating the Zacks Consensus Estimate by 6.8%. Fastenal has beaten the Zacks Consensus by an average of 11.0% in the last two quarters.

Estimates

In the last 30 days, the Zacks Consensus Estimate for 2010 is up 5 cents, or 2.9%, to $1.77, and the Zacks Consensus for 2011 is up 4 cents, or 1.9%, to $2.15.

Balance Sheet

Fastenal's balance sheet looks solid. At the end of Q2, the company had about $221 million in cash and marketable securities and no debt. That translates to $1.50 in cash per share.

Additionally, the company continues to generate a considerable amount of cash. During the first six months of 2010, Fastenal generated $120 million in operating cash flow and $87 million in free cash flow.

Read the June 16 commentary on Fastenal.

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