On May 17, we maintained a Neutral recommendation on
) following mixed first-quarter 2013 results. However, continuous
weakness in its top line is disturbing.
Why the Neutral Recommendation?
This industrial and construction supplies company announced
first-quarter 2013 results on Apr 10. Adjusted earnings of 37
cents per share were in line with the Zacks Consensus Estimate
but grew 8.8% year over year, attributable to significant margin
growth. Revenues however, grew only 4.9% and also missed the
Zacks Consensus Estimate. The company continues to struggle with
sales growth. Top-line growth was slower than company
expectations in the quarter, hurt by one less selling day, soft
fastener sales and global economic policy uncertainty.
Fastenal's daily sales growth rates have been weak since the
last 3 - 4 quarters mainly due to weakness in its fastener
product line, which are being hurt by end-market slowdown and
broader economic uncertainty. From more than 15% growth in the
first quarter of 2012, the fastener product line, which accounts
for more than 40% of company sales, dropped to 1.7% growth in the
first quarter of 2013.
Estimates have mostly shown a downward trend after the
announcement of first-quarter results. The Zacks Consensus
Estimate for 2013 has gone down by 1.8% to $1.61 per share while
that for 2014 has gone down by 2.1% to $1.87 over the last 60
However, the strong gross margin improvement and easing
comparisons ahead keep us optimistic. Despite an overall weak
sales pattern, the company is seeing some progress around its
vending program and is fast accelerating its vending contract
signings and installations. We are also encouraged by Fastenal's
other growth drivers like government business and metalworking,
which are gaining traction and could help achieve profitability
in 2013 and beyond. We thus, remain on the sidelines on solid
Other Stocks to Consider
Fastenal carries a Zacks Rank #4 (Sell). Some building product
maker stocks that are worth a look include
Lumber Liquidators Holdings, Inc.
), carrying a Zacks Rank #1 (Strong Buy) and
The Home Depot, Inc.
Builders First Source, Inc.
), both carrying a Zacks Rank #2 (Buy).
BUILDERS FIRSTS (BLDR): Free Stock Analysis
FASTENAL (FAST): Free Stock Analysis Report
HOME DEPOT (HD): Free Stock Analysis Report
LUMBER LIQUIDAT (LL): Free Stock Analysis
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