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Genuine Parts Company Analysis – September 2015 Update $GPC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Genuine Parts Company (GPC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Genuine Parts Company is a service organization engaged in the distribution of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials. The Company operates through four segments: Automotive Parts Group, which distributes automotive parts and accessory items; Industrial Parts Group, which distributes industrial replacement parts and related supplies; Office Products Group, which is engaged in the wholesale distribution of a line of office and other business related products, and Electrical/Electronic Materials Group, which distributes materials to more than 20,000 electrical and electronic manufacturers, as well as industrial assembly and specialty wire and cable markets in North America. In 2014, the Company’s business was conducted from approximately 2,600 locations throughout the United States, Canada, Mexico, Australia and New Zealand.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of GPC – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $4.43
MG Growth Estimate 6.58%
MG Value $96.04
Opinion Fairly Valued
MG Value based on 3% Growth $64.28
MG Value based on 0% Growth $37.68
Market Implied Growth Rate 5.18%
Current Price $83.64
% of Intrinsic Value 87.09%

Genuine Parts Company qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PB ratio.  The Enterprising Investor is only initially concerned by the low current ratio.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.08 in 2011 to an estimated $4.43 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 5.18% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Genuine Parts Company (GPC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

GPC Charts September 2015

Net Current Asset Value (NCAV) $3.88
Graham Number $46.85
PEmg 18.87
Current Ratio 1.49
PB Ratio 3.94
Dividend Yield 2.85%
Number of Consecutive Years of Dividend Growth 20

 

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Most Recent Balance Sheet Figures

Total Current Assets $5,763,520,000
Total Current Liabilities $3,867,622,000
Long-Term Debt $500,000,000
Total Assets $8,413,633,000
Intangible Assets $1,382,766,000
Total Liabilities $5,169,818,000
Shares Outstanding (Diluted Average) 152,989,000

Earnings Per Share History

Next Fiscal Year Estimate $4.60
Dec14 $4.61
Dec13 $4.40
Dec12 $4.14
Dec11 $3.58
Dec10 $3.00
Dec09 $2.50
Dec08 $2.92
Dec07 $2.98
Dec06 $2.76
Dec05 $2.50
Dec04 $2.25
Dec03 $1.91
Dec02 -$0.16
Dec01 $1.71
Dec00 $2.20
Dec99 $2.11
Dec98 $1.98
Dec97 $1.90
Dec96 $1.82
Dec95 $1.68

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.43
Dec14 $4.22
Dec13 $3.85
Dec12 $3.46
Dec11 $3.08
Dec10 $2.83
Dec09 $2.74
Dec08 $2.80
Dec07 $2.66
Dec06 $2.28
Dec05 $1.91
Dec04 $1.60
Dec03 $1.37
Dec02 $1.26
Dec01 $1.97
Dec00 $2.07
Dec99 $1.97

Recommended Reading:

Other ModernGraham posts about the company

Genuine Parts Company Analysis – June 2015 Quarterly Update $GPC
23 Companies in the Spotlight This Week – 3/9/15
Genuine Parts Company Quarterly Valuation – March 2015 $GPC
32 Companies in the Spotlight This Week – 12/6/14
Genuine Parts Company Quarterly Valuation – December 2014 $GPC

Other ModernGraham posts about related companies

Ford Motor Company Analysis – August 2015 Update $F
Advance Auto Parts Inc. Analysis – Initial Coverage $AAP
General Motors Company Analysis – 2015 Update $GM
BorgWarner Inc. Analysis – July 2015 Update $BWA
Paccar Inc. Analysis – July 2015 Update $PCAR
Harley Davidson Analysis – June 2015 Update $HOG
Delphi Automotive Analysis – 2015 Update $DLPH
Genuine Parts Company Analysis – June 2015 Quarterly Update $GPC
Harman International Industries Analysis – June 2015 Quarterly Update $HAR
Ford Motor Company Stock Analysis – May 2015 Quarterly Update $F

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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