Analysts Say Additional Fastenal Upside Is Limited Following Earnings Pop

Fastenal Company FAST shares jumped 17.2% to a new all-time high on Friday after the company reported earnings and revenue beats. The construction equipment maker reported 7.8% sales growth, while gross margins dropped from 48.1% to 47.2%.

Fastenal’s strong quarter was reassuring for investors after the company fell short of consensus expectations in the second quarter. Despite the top- and bottom-line beats, management said the broader weakness in the economy that triggered the second-quarter miss persisted in the third quarter.

Several analysts have weighed in on Fastenal following last week’s earnings beat. Here’s a sampling of what they’ve had to say.

Navigating A Tricky Environment

Morgan Stanley analyst Joshua Pokrzywinski said a clean beat from the first industrial stock to report this earnings season is a good sign.

“Positioning into the quarter - as well as trade developments - drove Friday's narrative, but we believe management deserves credit for delivering on price commitments established earlier this year,” Pokrzywinski wrote in a note.

Wells Fargo analyst Michael McGinn said Fastenal's 2020 growth outlook looks bullish with or without a trade deal.

“We expect market outgrowth (potential) to be the debate going forward, especially as the Onsite initiative begins to mature and customer attrition (35 closures this qtr) narrows the gap on signings,” McGinn wrote.

Raymond James analyst Sam Darkatsh said the stock’s long-term correlation with its return on tangible net assets suggest limited upside following the initial earnings pop.

“While 3Q represented an ‘across the board beat,’ we see Friday's +17% stock action as representative of a significant near-term short squeeze given the absence of likely higher estimate revisions,” Darkatsh wrote.

Market Overreaction?

KeyBanc analyst Steve Barger said the third-quarter numbers were solid, but slowing economic growth represents a lingering risk looking forward.

“Despite solid execution for FAST amid a tough industrial environment in 3Q19, we think challenging sales trends against tough prior-year comparisons and deceleration in key macro data points makes Friday’s move and resulting valuation hard to justify at this point in the cycle,” Barger wrote.

Tigress Financial analyst Ivan Feinseth said Fastenal shares appear to have gotten ahead of themselves a bit on Friday.

“I would be a buyer on any pullbacks below $32 a share and believe strong business trends will continue for some time,” Feinseth wrote.

Ratings And Price Targets

• Morgan Stanley has an Equal-Weight rating and $31 target.
• Wells Fargo has a Market Perform rating and $38 target.
• Raymond James has a Market Perform rating.

Fastenal's stock traded around $35.81 per share at time of publication.

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