Earnings estimates for Genuine Parts Company (GPC) are on the rise given its solid first quarter results, bullish guidance and the May 1st acquisition of Quaker City Motor Parts - a leading supplier of National Automotive Parts Association (:NAPA) automotive parts.
The replacement auto parts distributor also has a commendable dividend yield of 3.3%. Earnings growth for this Zacks #2 Rank (Buy) stock is expected to be strong in 2012 and 2013.
A Promising First Quarter
On April 19, Genuine Parts came out with first quarter 2012 earnings of 93 cents per share, reflecting a 16% increase from 80 cents in the same quarter of 2011. The bottom line exceeded the Zacks Consensus Estimate by 8%, depicting the second highest positive surprise in the last seven quarters.
Revenues were in line with the Zacks Consensus Estimate at $3.2 billion. It grew 7% from the prior-year quarter, driven by strong sales mainly in the Automotive and Industrial segments. The Automotive and Industrial segments recorded 6% and 12% revenue growth in the quarter, respectively, offsetting the decline in the Office Products segment.
According to Thomas C. Gallagher, Chairman and CEO of the company, sales in the Automotive segment were propelled by effective sales initiatives, while the Industrial and Electrical segments continue to be favorably affected by recovery of the manufacturing sector.
Management upgraded the 2012 EPS guidance to between $3.93 and $4.05 from the earlier range of $3.85 to $4.00. The optimism is primarily triggered by the acquisition of Middletown, Delaware-based Quaker City, which delivers a fabulous growth opportunity in the mid-Atlantic region in the U.S. with 270 NAPA parts stores. The company expects the acquisition to contribute 1% to the full-year revenue and $0.04 to $0.05 to earnings.
Estimates Edging Up
Over the last 90 days, the Zacks Consensus Estimate for 2012 increased about 1% to $4.07, representing an expected annualized growth of 14%. For 2013, the Zacks Consensus Estimate moved up about 3% to $4.40 over the same timeframe, translating to an expected year-over-year growth of 8%.
Escalating Dividends
Genuine Parts follows a continuous dividend payment policy with a raise every year. In both 2011 and 2012-first half, the company raised its dividend payments by 10%. On June 6, it paid the last quarterly dividend of 49.5 cents per share, representing a solid yield of 3.3%.
Decent Valuation
Genuine Parts' valuation is reasonable with shares trading at a forward P/E of 14.7x, which is on par with the peer group average. The price-to-book of 3.2x is significantly above the peer group average of 1.7x. The company also has a 1-year ROE of 20.3%, which is much better than its peer group average of 13.8%.
A Glimpse of the Chart
The price and consensus chart shows that the stock has started replicating the growth trend of earnings estimates from early 2009. It reached its 52-week high of $66.50 on May 3, 2012, which was about 2 weeks following the earnings announcement. Thus, the stock is likely to steer ahead given the rising estimates.
Wrapping Up
Genuine Parts maintained its sales and earnings momentum from 2010 through the first quarter of 2012. The company expects to leverage the strong fundamentals of the automotive aftermarket and recovery in the manufacturing sector. With continued progress, stable earnings estimates, solid dividend yield and a reasonable valuation, the stock is definitely placed in the favorites list of investors seeking growth and income.
Incorporated on May 7, 1928, Genuine Parts Company based in Atlanta, Georgia distributes automotive and industrial replacement parts, office products and electrical/electronic materials in the U.S., Canada and Mexico. The company has a market cap of $9.3 billion and conducts its business from 1,900 locations.
GENUINE PARTS (GPC): Free Stock Analysis Report
More From Zacks.com
