% | $
Quotes you view appear here for quick access.

Genuine Parts Company Message Board

you are viewing a single comment's thread.

view the rest of the posts
  • DONEDEALER DONEDEALER Sep 20, 2000 8:06 PM Flag

    Current Prices

    I am not sure whether your no growth calculation
    assumes zero growth or 6% per year
    decline in
    business. This is because my no
    growth scenario results
    in 6% per year growth.

    My scenario assumes
    that management is
    rationale and pursues the best
    interests of
    the shareholders. If GPC has no growth
    it will earn 2.25 this year and next
    Management should then invest the 1.15 excess
    of earnings
    over 1.10 dividend for the best
    return available.
    This return should be at least as good as buying in
    the stock. 1.15
    times 750 million shares = 862.5
    million dollars. This will purchase 45 million
    at 19 per share. The 1,687.5 million net
    (750 million shares X 2.25) is now
    divided among
    705 million shares for an EPS
    of 2.394. This is a
    growth in EPS of over

    Therefore, my no
    growth scenario results in
    a total return of over 12%
    (5.8% dividend yield plus 6.4% dividend growth. Should
    price of the stock rise faster than the 6.4%
    then so much the better.

    If GPC were at 15 per
    share the dividend yield
    would 7.3% and GPC would be
    able to buy in
    57.5 million shares next year. EPS
    would be
    2.437 on the reduced 692.5 million shares.
    is an 8.3% growth for a total return of

    It appears to me that the 12% return on the
    price is more than fair and justifies that
    The 15.6% return on the 15 price appears excessive
    and indicates substantial
    undervaluation assuming
    no growth.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • I would agree with a return of 15% annual at ZERO
      growth at a purchase price of 15. This is not because I
      am bright enough to think this up myself but rather
      because that is what the Quicken tool suggests. Your
      number is only slightly higher even though you and
      Quicken seem to go at the process in very different ways.

      My own case is based on normalized prices and my
      judgement of what the alternative investments are out

    • The no growth scenario I was referring to is one
      where the company retains a portion of its earnings.
      And as you stated is rational about using it.

      But as it buys back shares the margins continue to
      decline on the already invested capital due to
      competitive pressures and/or changes in the business.

      That leads to flat or declining earnings. Now if you
      discount that at 7% you will certainly get a favorable
      valuation anyway. But I would say that on average,
      businesses are discounted at a higher level than

      Clearly someone out there thinks there are issues in this
      industry. Otherwise the group wouldn't be getting killed.
      This isn't panic selling or anything. People make
      mistakes, but they aren't crazy either.

      The key to
      the extent of the undervaluation is understanding the
      issues that the market is discounting. If the market is
      simply wrong we should all back up the truck.

      • 1 Reply to wcrimi
      • In lecturing his students in ETHICS Aristotle
        said the following:

        " is a mark of the
        trained mind never to expect more precision in the
        treatment of any subject than the nature of that subject
        permits; for demanding logical demonstrations from a
        teacher of rhetoric is clearly about as reasonable as
        accepting mere plausibility from a

        The most reliable indicator of value you have is the
        objective data of the numbers and the greatest certainty
        you can obtain is in your own logical processing of
        that data.

        The following I believe is about as
        good an explination for the discounting of GPC as
        there is but it is a far less acceptable answer to that
        question than the numbers provided for the value question:

        GPC's industry like the economy has a problem - over
        capacity - there are a ton of people out there selling
        auto parts, office supplies, electrical equipment -
        what have you. About the only place where there isn't
        over capacity is in Oil but to participate in that
        boom you had to buy the stocks while the market was
        marking them down as the market is marking GPC down now.
        How do you cure over capacity - with low prices -
        margins low enough to be unattractive except to the most

        That is my answer to why GPC is down - it
        is a less reliable answer as to why the stock is
        down than the answer the numbers provide as to weather
        or not the stock is cheap. It is less reliable
        because the nature of the question admits only a better
        argued rather than a more reliable answer. Someone else
        may provide a different answer but all we will be
        able to say of it is that it was either better or
        worse argued than that given above.

101.25+2.07(+2.09%)Jun 30 4:02 PMEDT