Graco Downgraded At 24x Earnings

The Q4:16 results reported by Graco Inc. GGG “represent the company's ability to drive organic revenue growth in the face of uneven end markets and manage the business to increase operating margins,” Wunderlich’s Liam D. Burke said in a note.

The analyst downgraded the rating on the company from Buy to Hold, with a price target of $9.

Fairly Valued

Burke mentioned that the current stock valuation reflects the company’s robust free cash flow generation and ROIC, and trading at 24x the 2017 EPS estimate, Graco shares are fairly valued at present.

“Graco continues to manage through near-term challenges, such as weaker energy end markets, to generate organic revenue growth, strong free cash flow, and high returns on invested capital,” the analyst mentioned.

Q4 Results

The company reported its EPS for Q4:16 at $1, ahead of the estimate and the consensus and representing 7.5 percent year-on-year growth.

Revenue also increased 7.2 percent year-on-year, while the adjusted operating margins rose 100 bps during the quarter.

For 2016, Graco reported revenue growth of 3.3 percent, with 1.3 percent growth in adjusted operating profit.

“The company generated $3.99 per share in free cash flow on reported EPS of $0.71 during fiscal 2016,” Burke stated.