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Fastenal Company (FAST)

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Though Fastenal Company's (FAST) second quarter 2012 earnings of $0.38 beat the Zacks Consensus Estimate by a penny, total revenue was below the Zacks Consensus Estimate, mainly due to a slowdown in sales to manufacturing customers. Daily sales growth rates declined sharply in the quarter due to sluggish end-markets as well as foreign currency headwinds.

The sequential change in daily sales for the first half of 2012 was also below historical averages, highlighting the rising uncertainty in the growth outlook of Fastenal's end markets. Moreover, Fastenal's pathway to profit strategy has failed to achieve its desired results.

Other than that, the company's strategy of new store openings significantly hurt near-term profitability due to the start-up costs involved in opening a new store. These factors combined with margin pressures due to rising cost of fuel has forced us to downgrade our recommendation on shares of Fastenal from Neutral to Underperform and set a target price of $41.00.

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