ModernGraham Valuation: Genuine Parts Company (GPC)

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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 in four: Automotive Parts Group, Industrial Parts Group, Office Products Group and Electrical/Electronic Materials Group. The Automotive Parts Group distributes automotive parts and accessory items. In addition to over 427,000 available part numbers, the Company offers inventory, cataloging, marketing, training and other programs in the automotive aftermarket. The Industrial Parts Group is operated as Motion Industries, Inc. (Motion), a wholly owned subsidiary of the Company. During the year ended December 31, 2012, the Company’s business were conducted throughout the United States, in Canada and in Mexico from approximately 2,000 locations. On February 1, 2012, the Company acquired Light Fabrications Inc.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $78.11
MG Opinion Fairly Valued
Value Based on 3% Growth $55.54
Value Based on 0% Growth $32.56
Market Implied Growth Rate 6.43%
NCAV $11.93
PEmg 21.37
Current Ratio 1.53
PB Ratio -2.63

Balance Sheet – 9/30/2013 

Current Assets $5,295,500,000
Current Liabilities $3,454,100,000
Total Debt $250,000,000
Total Assets $7
Intangible Assets $7,493,900,000
Total Liabilities $4,800,800,000
Outstanding Shares 154,360,000

Earnings Per Share – Diluted

2013 (estimate) $4.33
2012 $4.14
2011 $3.58
2010 $3.00
2009 $2.50
2008 $2.92
2007 $2.98
2006 $2.76
2005 $2.50
2004 $2.25
2003 $2.03
2002 $2.10

Earnings Per Share – Modern Graham (Calculating EPSmg)

2013 (estimate) $3.83
2012 $3.46
2011 $3.08
2010 $2.83
2009 $2.74
2008 $2.80

Conclusion:

Genuine Parts Company should be on the radar of every Enterprising Investor.  The company does not pass the requirements of the Defensive Investor, by having a current ratio that is too low and currently trading at a PEmg ratio just a little high, but it passes every single requirement of the Enterprising Investor.  The company has had stable earnings growth and dividend history, and generally looks good for the Enterprising Investor.  From a valuation perspective, the company appears to be fairly valued.  After growing EPSmg (normalized earnings) from $2.80 in 2008 to an estimated $3.83 for 2013, the market-implied growth rate of 6.43% is in line with the historical performance.  As a result, Enterprising Investors should feel comfortable if further research indicates the company may be suitable for their individual portfolios.

What do you think?  Is Genuine Parts Company farily valued?  Is the company suitable for only Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Genuine Parts Company at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill


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