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On Feb 21, we maintained a Neutral recommendation on Fastenal Company (FAST - Analyst Report) following appraisal of its fourth-quarter 2012 results. The company also carries a Zacks Rank #3 (Hold).

Why the Neutral Recommendation?

This industrial and construction supplies distributor’s fourth quarter 2012 earnings of 33 cents per share grew 10.0% year over year, attributable to decent margin growth. However, though revenue grew 8.5% year over year, it declined sequentially. Fastenal’s daily sales growth rates in the second, third and fourth quarters of 2012 have been lower than that of the first quarter as well as year-ago comparable periods mainly due to weakness in its fastener product line. Its fasteners product line is being hurt by end market slowdown and broader economic uncertainty. From 15% growth in the first quarter of 2012, the fastener product line, which accounted for 44% of sales in 2012, dropped to 2.5% growth in the fourth quarter of 2012.

Estimates have mostly shown a downward trend after announcement of the fourth quarter results. The Zacks Consensus Estimate for 2013 has gone down by 1.2% to $1.66 while that for 2014 has gone down by 1.6% to $1.90 over the last 60 days.

Despite weak sales on the whole, the company is seeing some progress around its vending program, FAST Solutions, and is fast accelerating its vending contract signings and installations. Industrial vending remains one of the primary growth drivers for Fastenal. 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 long-term fundamentals.

Other Stocks to Consider

Some building product maker stocks worth a look are The Home Depot, Inc. ((HD - Analyst Report)), Lowe's Companies Inc. (LOW - Analyst Report) and Builders FirstSource, Inc. (BLDR - Snapshot Report). All of these companies are Zacks Rank #2 (Buy) stocks.

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