Fastenal's Q3 Results Fail To Signal An Inflection Point In Demand

David Manthey of Baird maintained a Neutral rating on Fastenal Company FAST with an unchanged $45 price target after the company's third quarter results came in slightly below his expectations.

Specifically, the company earned $0.44 per share on revenue of $1.01 billion and reported a gross margin of 49.3 percent and operating margin of 20.0 percent. This compared to the analyst's estimates of $0.45 per share and $1.01 billion in revenue, gross margin of 49.5 percent and operating margin of 20.4 percent.

Fastenal also noted its September daily sales rose 2.8 percent, which fell short of the analyst's 3.3 percent estimate.

Looking forward, Fastenal said it expects to see lower 2017 expense growth and continued muted growth, which lead the analyst to reduce his estimates and maintain a cautious stance given "choppy, later-cycle trends" and a "fairly high valuation."

"Although sentiment is negative and short interest high, there was little in this report (growth, margins, outlook) to change prevailing investor opinion," the analyst wrote.

Bottom line, the analyst is forecasting mid-single-digit sales growth in 2017 and 2018 with "more modest growth" in gross profit. As such, the company could deliver an earnings per share growth in the 5 to 7 percent range.

However, Fastenal's "operational shock absorbers" are currently at "very low levels" so upside to the analyst's outlook could be constrained even if trends improve.