Genuine Parts: Buy, Sell, or Hold?


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Genuine Parts: Buy, Sell, or Hold?

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  • (company web page)
     Total net sales
      $3,624,897   $3,198,802
    See spreadsheet submitted with the article for fair value estimate
  • Genuine Parts: Buy, Sell, or Hold?

    1. 1. Genuine Parts Company: Buy, Sell, or Hold?
    2. 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) Source:
    3. 3. It’s genuinely a parts company Source: Company 10-K for FY 2013, via • 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 new ones.
    4. 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. 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 • Valuation ...will usually help you get a sense for the company’s potential.
    6. 6. Key Financial Factor Review -- Balance Sheet • Genuine Parts’ balance sheet looks reasonable -- and solid enough to help it navigate economic fluctuations. • 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. 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. 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. 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 unsustainable dividends. • Its valuation looks reasonable enough to continue holding, but not cheap enough to make it a compelling buy.
    10. 10. Learning how to invest better is just a click away…