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Reasons Why Graco (GGG) Stock is an Attractive Investment Option

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Investors seeking exposure in the manufacturing space may find Graco Inc. (GGG - Free Report) to be a suitable investment option. Solid fundamentals, impressive financial performance and healthy growth opportunities enhance the stock’s attractiveness.

The company engages in manufacturing and providing equipment and systems that are used to measure, move, control, spray and dispense fluid as well as powder materials. The company is based in Minneapolis, MN, and has a market capitalization of $12.7 billion.

The company presently carries a Zacks Rank #2 (Buy). It belongs to the Zacks Manufacturing – General Industrial industry, which comes under the ambit of the Zacks Industrial Products sector. The industry is among the top 24% (with the rank of 60) of more than 250 Zacks industries.

In the past three months, the company’s shares have gained 8% compared with the industry’s growth of 11.6%. Notably, the S&P 500 expanded 10.2%, while the sector advanced 6.7% during the same timeframe.


Below we discussed why Graco is a worthy investment option now.

Earnings Performance and Projections: The company reported better-than-expected results for the first quarter of 2021. Its earnings beat was 16% and sales surprise was 5.25%. On a year-over-year basis, the bottom line expanded 52.6% on sales and margin growth.

In the quarters ahead, the company is poised to benefit from its solid product offerings, focus on innovation, efficient management and a solid customer base. Also, healthy demand for products in the Contractor segment and investments in capacity expansion appear to be tailwinds.

In 2021, the company’s investment to roll out machinery and equipment is expected to be $140 million — including $90 million to be used for facility expansion. Further, Intelligent Paint Kitchen, SaniSpray HP 20 electrostatic sprayer, Voltex Dynamic Mix Valve, TapeLazer HP Automatic system and other products have been unveiled since the beginning of 2021. Such innovative products will be beneficial for the company in the quarters ahead.

A healthy liquidity position also adds to its appeal. It had long-term debts of $150 million, and cash and cash equivalents of $460.6 million at the end of first-quarter 2021.

International Operations: Graco has operations in the United States, Africa, the Middle East, the Asia Pacific and others. International operations, though exposes it to geopolitical issues, have increased business opportunities for Graco over time. In first-quarter 2021, the company’s sales in the Asia Pacific increased 30% year over year, while that in the EMEA and the Americas expanded 25% and 18%, respectively.

In addition, favorable movements in foreign currencies positively impacted Graco’s results in the first quarter of 2021. Notably, sales grew 4% year over year on the back of forex tailwinds. In 2021, positive impacts of 2% on sales and 5% on earnings are anticipated from movements in foreign currencies.

Rewards to Shareholders: Over time, Graco has been rewarding its shareholders with dividend payments and share buybacks. For dividend payouts, the company used $31.6 million in the first quarter of 2021. The payment reflects an increase of 7.9% from the year-ago quarter. It is worth mentioning here that the quarterly dividend rate was hiked by 7.1% in December 2020.

With regard to share buybacks, the company refrained from indulging in the activities in the first quarter of 2021. However, it did repurchase shares worth $102.1 million in 2020 and $82.2 million in the first quarter of 2020. We believe that a healthy cash flow position will likely help it reward its shareholders.

Earnings Estimate Revisions: The company’s earnings estimates have increased in the past 60 days. Currently, the Zacks Consensus Estimate for earnings is pegged at 61 cents for the second quarter and 63 cents for the third quarter of 2021, reflecting increases of 8.9% and 5% from the respective 60-day-ago figures.

Also, earnings estimates are pegged at $2.49 for 2021 and $2.68 for 2022, reflecting increases of 6.4% and 6.3% from the 60-day-ago figures, respectively.

Graco Inc. Price and Consensus


Graco Inc. Price and Consensus

Graco Inc. price-consensus-chart | Graco Inc. Quote

Other Key Picks

Some other top-ranked stocks in the industry are Tennant Company (TNC - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Dover Corporation (DOV - Free Report) . While Tennant currently sports a Zacks Rank #1 (Strong Buy), both Applied Industrial and Dover carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these companies have improved for the current year. Further, earnings surprise for the last reported quarter was 82.81% for Tennant, 35.64% for Applied Industrial and 23.13% for Dover.

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