BMO Sees 3 Drivers Benefiting Fastenal Sales Growth In 2017 - Fastenal (NASDAQ:FAST)

BMO expects

Fastenal CompanyFAST

to benefit from three separate sales drivers in 2017 after the company's second-quarter results lagged Street view.

Fasternal said it earned $131.52 million or $0.45 a share for the second quarter, which was down from $140.36 million, or $0.45 a share, in the year-ago quarter. Street analysts expected the company to report earnings of $0.45 a share.

Following are the sales drivers of Fastenal, according to BMO:

1. Vending: During second quarter, Fastenal signed 4,869 vending devices, and the total installed count at the end of the quarter was 58,346, up 15 percent year-over-year. Total ADS to this group of customers was up 3 percent year-over-year in 2Q16 (up 4 percent in Q1 of 2016).

"Management believes it is gaining share through Vending, although existing customers are buying less. Approximately 75 percent of the vending machines installed have been optimized, which is up from 60 percent in 1Q16," analyst Scott Graham wrote in a note.

2. On-site: Fastenal's goal is to sign 200 on-site customer locations in fiscal year 2016; it has signed 92 on-sight customer locations year-to-date. Management still thinks its goal is attainable. The analyst said on-site signings should also help drive national account signings, seeing as 75 percent of on-sites are attached to national account customers.

3. CSP 16: Fastenal converted 1,900 stores to the CSP 16 format year-to-date. CSP 16 is now largely in place, which now positions Fastenal to be a better and more efficient same-day supplier to its customers. CSP 16 also broadens the range of customers that can buy from Fastenal.

Rating, Estimates And Justification

However, following lower-than-expected second-quarter results, Graham slashed his 2016 EPS estimate by $0.10 to $1.73, and 2017 EPS view by $0.11 to $1.87. The analyst, who has a Market Perform rating on the stock, also trimmed his price target by $2 to $47.

"FAST is currently trading at 15 percent premiums to the Industrial Distribution stocks. We believe the stock should trade at 25 percent premiums to these peers. In recent years, the historical premium levels have declined to 20–40 percent due to slower sales and earnings growth and an inability to hit its pretax margin goal. We believe this construct should hold at present," Graham added.

Shares of Fastenal closed Wednesday's regular trading session at $43.30. Did you like this article? Could it have been improved? Please email feedback@benzinga.com to let us know!

Market News and Data brought to you by Benzinga APIs