http://finance.yahoo.com/q?s=GPC See spreadsheet submitted with the article for fair value estimate http://news.investors.com/072114-709602-genuine-parts-beats-q2-earnings-and-revenue-estimates.htm
1. Genuine Parts Company:
Buy, Sell, or Hold?
2. The business
• Genuine Parts (NYSE: GPC) operates in 4 key business lines:
• Automotive Parts (NAPA Auto Parts)
• Industrial Parts (Motion Industries)
• Office Products (S.P. Richards)
• Electrical/Electronic Materials (EIS)
3. It’s genuinely a parts company
Source: Company 10-K for FY 2013, via edgar.sec.gov.
• Auto parts represent just over half the company’s revenues.
• Industrial parts generate about a third of its sales.
• “Parts” are less economically sensitive than total autos.
• Average age of a car on the road: 11.4 years
• Older cars typically need more parts/maintenance than
4. • Compared to other auto parts companies, Genuine Parts
shines on several key financial metrics:
• The highest total revenue
• The strongest dividend yield
• The only one with any sort of dividend growth trend
• The least debt-levered balance sheet
Why consider Genuine Parts over its peers?
5. But is it worth owning?
• Genuine Parts operates in a fairly stable industry.
• It looks reasonable on key measures compared to its peers.
• Still, for an outside investor, it’s only worth owning if it looks
capable of potentially providing decent risk-adjusted returns.
You will never know for certain, but looking at the company’s:
• Balance sheet
• Dividend practice, payout ratio, and coverage levels
...will usually help you get a sense for the company’s potential.
6. Key Financial Factor Review -- Balance Sheet
• Genuine Parts’ balance sheet looks reasonable --
and solid enough to help it navigate economic
• Debt/equity ratio around 0.2
• $150 million in cash on its balance sheet
• 1.6 current ratio
Genuine Parts could be here, based on its balance sheet.
7. Key Financial Factor Review -- Dividend
• Genuine Parts has a strong and well-supported dividend
• Payout ratio of 49%
• Current yield of 2.3%
• 58 years of dividend growth, with a 7% increase in 2014
Reasonable current yield, a solid payout ratio with room to
keep growing as the company does, and a long history of
directly rewarding shareholders for the risks they take.
Genuine Parts could be here, based on its dividend.
8. Key Financial Factor Review -- Valuation
• Market cap of $13.1 billion on July 26, 2014
• Fair-value estimate around $11.6 billion
• Sales growth slowed in the most recent quarter.
• All fair-value estimates rely on assumptions for the future and may
not reflect what the company will actually deliver.
• Genuine Parts’ market cap is close enough to that fair-value estimate
that there’s no compelling need to sell based on valuation.
Genuine Parts could be here,
based on valuation.
9. Net conclusion: Hold and monitor
Genuine Parts’ composite result
• Genuine Parts continues to operate effectively, grow
reasonably and reward its shareholders decently.
• It hasn’t overleveraged its balance sheet or committed to
• Its valuation looks reasonable enough to continue holding,
but not cheap enough to make it a compelling buy.
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