Fastenal Co Valuation – March 2018 $FAST

Company Profile (excerpt from Reuters): Fastenal Company, incorporated on December 24, 1968, is engaged in wholesale distribution of industrial and construction supplies. The Company is engaged in fastener distribution, and non-fastener maintenance and supply business. As of December 31, 2016, it distributed these supplies through a network of approximately 2,500 company-owned stores. Most of its customers are in the manufacturing and non-residential construction markets. The manufacturing market includes both original equipment manufacturers (OEM) and maintenance, repair, and operations (MRO). The non-residential construction market includes general, electrical, plumbing, sheet metal and road contractors. Other users of its products include farmers, truckers, railroads, oil exploration, production and refinement companies, mining companies, federal, state, and local governmental entities, schools and certain retail trades. Geographically, its stores and customers are primarily located in North America.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FAST – March 2018

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 $15,487,469,576 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 5.51 Pass
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 123.08% Pass
6. Moderate PEmg Ratio PEmg < 20 26.76 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.38 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 5.51 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.26 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 $2.01
MG Growth Estimate 5.65%
MG Value $39.85
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $29.17
MG Value based on 0% Growth $17.10
Market Implied Growth Rate 9.13%
Current Price $53.85
% of Intrinsic Value 135.14%

Fastenal Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. 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 $1.46 in 2014 to an estimated $2.01 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.13% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Fastenal Company revealed the company was trading above its Graham Number of $19.63. The company pays a dividend of $1.28 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 26.76, which was below the industry average of 29.29, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $3.9.

Fastenal Company performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $3.90
Graham Number $19.63
PEmg 26.76
Current Ratio 5.51
PB Ratio 7.38
Current Dividend $1.28
Dividend Yield 2.38%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $1,935,700,000
Total Current Liabilities $351,000,000
Long-Term Debt $412,000,000
Total Assets $2,910,500,000
Intangible Assets $0
Total Liabilities $813,600,000
Shares Outstanding (Diluted Average) 287,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.35
Dec2017 $2.01
Dec2016 $1.73
Dec2015 $1.77
Dec2014 $1.66
Dec2013 $1.51
Dec2012 $1.42
Dec2011 $1.21
Dec2010 $0.90
Dec2009 $0.62
Dec2008 $0.94
Dec2007 $0.78
Dec2006 $0.66
Dec2005 $0.55
Dec2004 $0.43
Dec2003 $0.28
Dec2002 $0.25
Dec2001 $0.23
Dec2000 $0.27
Dec1999 $0.22
Dec1998 $0.18

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.01
Dec2017 $1.81
Dec2016 $1.68
Dec2015 $1.60
Dec2014 $1.46
Dec2013 $1.29
Dec2012 $1.12
Dec2011 $0.94
Dec2010 $0.80
Dec2009 $0.74
Dec2008 $0.75
Dec2007 $0.62
Dec2006 $0.51
Dec2005 $0.40
Dec2004 $0.32
Dec2003 $0.25
Dec2002 $0.24

Recommended Reading:

Other ModernGraham posts about the company

Fastenal Company Valuation – July 2016 $FAST
9 Best Stocks For Value Investors This Week – 11/28/15
Fastenal Co Valuation – November 2015 Update $FAST
19 Best Stocks For Value Investors This Week – 8/29/15
Fastenal Company Analysis – August 2015 Update $FAST

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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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