Stock Analysis: Genuine Parts Co. (GPC)
Linked here is a detailed quantitative analysis of Genuine Parts Co. (GPC). Below are some highlights from the above linked analysis:
Company Description: Genuine Parts Co. is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
GPC is trading at a discount to 1.) and 3.) above. Since GPC’s tangible book value is not available, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, GPC is trading at a 11.1% discount. GPC earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
1. Rolling 4-yr Div. > 15%
2. Dividend Growth Rate
3. Years of Div. Growth
4. 1-Yr. > 5-Yr Growth
5. Payout 15% of avg.
GPC earned one Star in this section for 3.) above. GPC has paid a cash dividend to shareholders every year since 1948 and has increased its dividend payments for 53 consecutive years, most recently in January 2009.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
GPC earned both of the available Stars in this section. The NPV MMA Diff. of the $9,292 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as GPC has. GPC’s current yield of 5.79% exceeds the 3.3% estimated 20-year average MMA rate.
Other: GPC is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. GPC’s long-term record of rising sales, earnings and dividends is driven by its strong leadership and firmly supported by a healthy balance sheet. Its debt to total capital of 18% is well below the 35% target I prefer. The company’s return on capital employed has been in the mid-to-high teens for the last four years. With little debt and free cash flow more than 1.5 times the dividend, GPC is in a good position to weather the current economic crisis and continue to grow its dividend. An above-average dividend yield, in excess of 5%, adds to GPC’s total return potential. Risks include include weaker-than-expected product demand and a slow improvement in operating margins.
Conclusion: GPC earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks GPC as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could decrease to $40.83 before GPC’s NPV MMA Differential fell to the $3,000 that I like to see. At that price the stock would yield 3.92%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $3,000 NPV MMA Differential, the calculated rate is -3.5%. This dividend growth rate is negative and well below the 2.6% used in this analysis, thus providing a margin of safety. GPC has a risk rating of 1.75 which classifies it as a medium risk stock.
I must admit to being pleasantly surprised by GPC. I have driven by their NAPA Auto Parts stores my entire life and would have never guessed it was such a well run business. GPC has earned a spot on my watch list with a buy price of $31.06. For additional information, including the stock’s dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in GPC (0.0% of my Income Portfolio).
What are your thoughts on GPC?
- Stock Analysis: Wal-Mart Stores, Inc. [WMT]
- Stock Analysis: Automatic Data Processing Inc. [ADP]
- Stock Analysis: Parker Hannifin Corp [PH]
- Stock Analysis: 3M Co. [MMM]
- More Stock Analyses