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Genuine Parts Co Valuation – July 2016 $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 Companies Benjamin Graham Would Invest In Today – June 2016.  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 Co (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’s segments include Automotive, Industrial, Office Products Group, Electrical/Electronic Materials and Other. The automotive segment distributes replacement parts for all makes and models of automobiles, trucks and other vehicles. The industrial segment distributes a range of industrial bearings, mechanical and fluid power transmission equipment, including hydraulic and pneumatic products, material handling components and related parts and supplies. The office products segment distributes a range of office products, computer supplies, office furniture, and business electronics. The electrical/electronic materials segment distributes a range of electrical/electronic materials, including insulating and conductive materials for use in electronic and electrical apparatus.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of GPC – July 2016

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 $15,657,262,715 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.37 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 65.95% Pass
6. Moderate PEmg Ratio PEmg < 20 22.89 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.88 Fail
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 1.37 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.16 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

GPC value chart July 2016

EPSmg $4.59
MG Growth Estimate 4.87%
MG Value $83.61
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $66.50
MG Value based on 0% Growth $38.98
Market Implied Growth Rate 7.19%
Current Price $104.97
% of Intrinsic Value 125.54%

Genuine Parts Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the low current ratio. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.46 in 2012 to an estimated $4.59 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.19% 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 below the price.

Genuine Parts Company performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

GPC charts July 2016

Net Current Asset Value (NCAV) $3.67
Graham Number $47.79
PEmg 22.89
Current Ratio 1.37
PB Ratio 4.88
Current Dividend $2.50
Dividend Yield 2.38%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $5,770,268,000
Total Current Liabilities $4,211,926,000
Long-Term Debt $250,000,000
Total Assets $8,450,527,000
Intangible Assets $1,412,985,000
Total Liabilities $5,218,797,000
Shares Outstanding (Diluted Average) 150,342,000

Earnings Per Share History

Next Fiscal Year Estimate $4.70
Dec2015 $4.63
Dec2014 $4.61
Dec2013 $4.40
Dec2012 $4.14
Dec2011 $3.58
Dec2010 $3.00
Dec2009 $2.50
Dec2008 $2.92
Dec2007 $2.98
Dec2006 $2.76
Dec2005 $2.50
Dec2004 $2.25
Dec2003 $1.91
Dec2002 -$0.16
Dec2001 $1.71
Dec2000 $2.20
Dec1999 $2.11
Dec1998 $1.98
Dec1997 $1.90
Dec1996 $1.82

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.59
Dec2015 $4.44
Dec2014 $4.22
Dec2013 $3.85
Dec2012 $3.46
Dec2011 $3.08
Dec2010 $2.83
Dec2009 $2.74
Dec2008 $2.80
Dec2007 $2.66
Dec2006 $2.28
Dec2005 $1.91
Dec2004 $1.60
Dec2003 $1.37
Dec2002 $1.26
Dec2001 $1.97
Dec2000 $2.07

Recommended Reading:

Other ModernGraham posts about the company

Dividend Growth Stocks for Intelligent Investors – June 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
26 Best Stocks For Value Investors This Week – 2/6/16
Genuine Parts Co Valuation – January 2016 Update $GPC
Dividend Growth Stocks for the Intelligent Investor – November 2015

Other ModernGraham posts about related companies

Johnson Controls Inc Valuation – July 2016 $JCI
Goodyear Tire & Rubber Co Valuation – July 2016 $GT
Harley-Davidson Inc Valuation – June 2016 $HOG
Autozone Inc Valuation – June 2016 $AZO
BorgWarner Inc Valuation – February 2016 Update $BWA
Genuine Parts Co Valuation – January 2016 Update $GPC
Ford Motor Company Valuation – January 2016 Update $F
Genuine Parts Co Valuation – January 2016 Update $GPC
Ford Motor Company Valuation – January 2016 Update $F
Harley-Davidson Inc Valuation – January 2016 Update $HOG

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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