Fastenal Company (FAST - Free Report) crafts a new 52-week high of $60.93 on Oct 13, 2023. The stock pulled back to end the trading session at $60.12.
Notably, Fastenal has gained 27% year to date (YTD), faring better than the Zacks Building Products - Retail industry’s decline of 1.7% and Zacks Retail-Wholesale sector’s 11.6% rise. The stock has also outperformed the Zacks S&P 500 composite’s 14% gain.
Ever since the company reported its third-quarter 2023 results, shares are up more than 7%, with earnings per share (EPS) beating the Zacks Consensus Estimate on better gross margins and September sales.
Key Takeaways
The company reported EPS of 52 cents in the quarter, which beat the consensus mark by a penny and increased 4.1% from the year-ago period. Importantly, September sales were much better than the other two months of the quarter, improving 5% year over year. Daily sales grew 3.6% and 3.7% in August and July 2023, respectively, year over year.
Again, surprisingly, the gross margin of 45.9% in the quarter expanded 40 basis points (bps) sequentially despite the fastener mix headwind. This upside was driven by a slightly less negative mix and slightly better-than-expected price-cost (as freight costs were lower than expected). Overall, pricing has returned to a more normalized level, which is expected to continue into 2024. Yet, management expects gross margin to come down in the fourth quarter from its 45.9% level in the third quarter as a result of seasonality (30 bps) and some moderation of price/cost.
Meanwhile, on a year-to-date basis, Fastenal has converted 121% of its net earnings into operating cash flow, marking its highest performance in a decade, which is about 95%. Its operating cash has increased 69% during the same period.
In the third quarter of 2023, Fastenal generated $388 million in operating cash, equivalent to 131% of its net income. Traditionally, the third quarter exhibits robust cash generation, but the current quarter's conversion rate surpassed historical norms. This uptick can be attributed to a reduced need for working capital as demand tapered off and improvements in inventory management. As a result of this robust cash flow, Fastenal's balance sheet remained notably conservative by the end of third-quarter 2023. The company's debt-to-total capital ratio concluded at 7%, a notable decline from 9.4% in the second quarter of 2023 and a substantial reduction from 14.9% in the third quarter of 2022.
Another positive takeaway from the quarterly is its digital footprint expansion. The company’s digital footprint increased to 57.1% of sales in the third quarter of 2023 from 49.5% of sales in the year-ago period. Digital footprint sales are expected to reach the 60% target in the next quarter.
Overall, Fastenal’s robust e-commerce business, prudent cash management, investment to increase Onsite locations and cost-control efforts are expected to drive growth.
Zacks Rank
Fastenal currently carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Some other top-ranked stocks in the Zacks Retail-Wholesale sector are:
Abercrombie & Fitch Co. (ANF - Free Report) sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 724.8%, on average. Shares of ANF have surged 163.6% YTD. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s 2024 sales and EPS implies increases of 10% and 1,644%, respectively, from the year-ago period’s levels.
Amazon.com, Inc. (AMZN - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 41%, on average. Shares of AMZN have gained 54.6% YTD.
The Zacks Consensus Estimate for AMZN’s 2023 sales and EPS indicates 11.1% and 214.1% growth, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 35%, on average. The stock has gained 13.1% YTD.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests a rise of 19.2% and 13%, respectively, from the year-ago period’s levels.
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Fastenal Company (FAST - Free Report) crafts a new 52-week high of $60.93 on Oct 13, 2023. The stock pulled back to end the trading session at $60.12.
Notably, Fastenal has gained 27% year to date (YTD), faring better than the Zacks Building Products - Retail industry’s decline of 1.7% and Zacks Retail-Wholesale sector’s 11.6% rise. The stock has also outperformed the Zacks S&P 500 composite’s 14% gain.
Ever since the company reported its third-quarter 2023 results, shares are up more than 7%, with earnings per share (EPS) beating the Zacks Consensus Estimate on better gross margins and September sales.
Key Takeaways
The company reported EPS of 52 cents in the quarter, which beat the consensus mark by a penny and increased 4.1% from the year-ago period. Importantly, September sales were much better than the other two months of the quarter, improving 5% year over year. Daily sales grew 3.6% and 3.7% in August and July 2023, respectively, year over year.
Again, surprisingly, the gross margin of 45.9% in the quarter expanded 40 basis points (bps) sequentially despite the fastener mix headwind. This upside was driven by a slightly less negative mix and slightly better-than-expected price-cost (as freight costs were lower than expected). Overall, pricing has returned to a more normalized level, which is expected to continue into 2024. Yet, management expects gross margin to come down in the fourth quarter from its 45.9% level in the third quarter as a result of seasonality (30 bps) and some moderation of price/cost.
Meanwhile, on a year-to-date basis, Fastenal has converted 121% of its net earnings into operating cash flow, marking its highest performance in a decade, which is about 95%. Its operating cash has increased 69% during the same period.
In the third quarter of 2023, Fastenal generated $388 million in operating cash, equivalent to 131% of its net income. Traditionally, the third quarter exhibits robust cash generation, but the current quarter's conversion rate surpassed historical norms. This uptick can be attributed to a reduced need for working capital as demand tapered off and improvements in inventory management. As a result of this robust cash flow, Fastenal's balance sheet remained notably conservative by the end of third-quarter 2023. The company's debt-to-total capital ratio concluded at 7%, a notable decline from 9.4% in the second quarter of 2023 and a substantial reduction from 14.9% in the third quarter of 2022.
Another positive takeaway from the quarterly is its digital footprint expansion. The company’s digital footprint increased to 57.1% of sales in the third quarter of 2023 from 49.5% of sales in the year-ago period. Digital footprint sales are expected to reach the 60% target in the next quarter.
Overall, Fastenal’s robust e-commerce business, prudent cash management, investment to increase Onsite locations and cost-control efforts are expected to drive growth.
Zacks Rank
Fastenal currently carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Some other top-ranked stocks in the Zacks Retail-Wholesale sector are:
Abercrombie & Fitch Co. (ANF - Free Report) sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 724.8%, on average. Shares of ANF have surged 163.6% YTD. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s 2024 sales and EPS implies increases of 10% and 1,644%, respectively, from the year-ago period’s levels.
Amazon.com, Inc. (AMZN - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 41%, on average. Shares of AMZN have gained 54.6% YTD.
The Zacks Consensus Estimate for AMZN’s 2023 sales and EPS indicates 11.1% and 214.1% growth, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 35%, on average. The stock has gained 13.1% YTD.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests a rise of 19.2% and 13%, respectively, from the year-ago period’s levels.
Zacks Reveals ChatGPT "Sleeper" Stock
One little-known company is at the heart of an especially brilliant Artificial Intelligence sector. By 2030, the AI industry is predicted to have an internet and iPhone-scale economic impact of $15.7 Trillion.
As a service to readers, Zacks is providing a bonus report that names and explains this explosive growth stock and 4 other "must buys." Plus more.
Download Free ChatGPT Stock Report Right Now >>
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