Graco Inc. (GGG - Free Report) can currently be considered a smart choice for investors seeking exposure in the manufacturing industry. It boasts solid growth prospects, evident from positive revision in its earnings estimates, and has solid fundamentals.
The Minneapolis, MN-based company currently sports a Zacks Rank #1 (Strong Buy). It belongs to the Zacks Manufacturing – General Industrial industry, which belongs to the broader Zacks Industrial Products sector.
We believe that a spur in construction and remodeling activities, technological advancement in manufacturing processes, growing popularity of e-retailing, and infrastructure development are a few factors that favor companies operating in the industry.
Below we discussed why it is worth investing in Graco.
Healthy Performance and Solid Growth Prospects: The company performed well in the last reported quarter, with earnings and sales surpassing estimates by 23.08% and 5.2%, respectively.
For 2020, Graco anticipates low-single-digit growth in its organic sales (at a constant-currency rate). Solid demand for products will likely support the performance of the Contractor segment. Regionally, organic sales (at a constant-currency rate) are anticipated to increase in low-single digits for the Americas and the EMEA region.
However, a few top-line headwinds, including difficult end-market conditions for the Industrial and Process segments, might be dragging in the first half of the current year. Also, flat organic performance is expected for the Asia Pacific region.
Rewards to Shareholders: Graco is committed toward rewarding shareholders handsomely through dividend payments and share buybacks. In 2019, it repurchased common stock worth $9.5 million and paid out dividends of $106.4 million.
It is worth mentioning here that the company announced a 9.4% (or 1.5 cents per share) increase in its quarterly dividend rate in December 2019. We believe that healthy cash flow position will help Graco in rewarding shareholders going forward.
Investments: The company is focused on capacity expansion and product innovation. In 2019, it invested $128 million for purchasing property, plant and equipment. This amount reflected an increase from $53.9 million spent in 2018. Also, product-development expenses increased 7% year over year to $67.6 million in 2019.
Notably, Graco launched Sealed 4-Ball Plus Lower pumps that can deliver fluids at the lowest cycle rates in fourth-quarter 2019. In January 2020, it unveiled the Compact Dyna-Star automatic lubrication system as well as the GLC X automatic lubrication controller and Auto Lube app. Last month, Fusion ProConnect spray gun was introduced by the company, while G-Mini compact lubrication pump and GrindLazer surface preparation products (high production) were launched recently.
For 2020, the company expects capital expenditure of $70 million, including $30 million for mortar and brick.
Share Price Performance & Earnings Estimates: We believe that impressive financial results must have helped drive sentiments for the stock. Notably, the company’s shares have gained 1.4% in the past three months against the industry’s 13.4% decline.
Also, Graco’s earnings estimates have been revised positively in the past 60 days. Currently, the Zacks Consensus Estimate for its earnings is pegged at $1.98 for 2020 and $2.11 for 2021, reflecting growth of 5.9% and 5% from the 60-day-ago figures. On a year-over-year basis, earnings estimates for 2020 and 2021 indicate growth of 4.2% and 6.5%, respectively.
Graco Inc. Price and Consensus