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Fastenal (FAST) Hits 52-Week High on Higher Sales & Gross Margin
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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.
Image Source: Zacks Investment Research
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:
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 (FAST) Hits 52-Week High on Higher Sales & Gross Margin
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.
Image Source: Zacks Investment Research
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.