Fastenal's Q4 Beat Fueled By Opex Leverage, Says Analyst Who Struggles To 'Get The Math To Work' - Fastenal (NASDAQ:FAST)

Raymond James analyst Sam J. Darkatsh reiterated an Underperform rating on the shares of Fastenal Co FAST.
4Q22 adjusted EPS was $0.43 (RJE/Street $0.43/$0.42), with EBITDA $375 million vs. RJE/Street $370 million/$365 million.
At a high level, better-than-expected opex leverage (driven by likely-unsustainable labor costs) offset softer-than-expected gross margins, the analyst added.
Gross margins of 45.3% missed views by 20 basis points – 30 basis points and fell y/y for the 2nd straight quarter to the lowest point since 3Q20.
Also Read: Fastenal Says Q4 Sales Growth Impacted By Softer Markets Of Consumer Goods, Construction
The analyst said negative price-cost should continue through at least 1H23 and annual gross margin mix pressures are now pegged as 50 basis points – 70 basis points from 30 basis points – 50 basis points prior.
Near term, the mild 4Q EPS beat was driven by likely-unsustainable labor-related opex savings as gross margins continued to moderate more than expected on a y/y basis, added the analyst.
2023 vending signings and onsite signings were both below plan for the year as actuals fell short of the target for the 4th and 6th year in a row, respectively.
The analyst noted that onsite churn improved sequentially but remained above the normal 5% range.
Due to the high w/cap and limited margin leverage within Fastenal’s business model, today’s ~3% FCF yield implies lofty market expectations for “base-case” organic ADS over the next decade-plus, said the analyst.
The analyst said it's a struggle to get the math to work, as the market continues to seemingly underwrite +HSD annual organic ADS in near-perpetuity, especially given the softening demand backdrop.
Price Action: FAST shares are trading higher by 3.58% at $48.48 on the last check Friday.
Photo Via Company

Market News and Data brought to you by Benzinga APIs