Fastenal (FAST) Up 43% in 6 Months: Can It Keep Momentum in 2024?
Fastenal Company FAST has been benefiting through proficient management of operating expenses and a robust business model. The expansion of Onsite locations, especially those inaugurated in 2023 and 2022, coupled with the inclusion of large customers, has further propelled its growth trajectory. Additionally, Fastenal’s leverage in its digital strategy, onsite/offsite mix and market share gains across its product categories are expected to drive growth.
Shares of this Winona, MN-based national wholesale distributor of industrial and construction supplies have gained 43.2% in the past six months, outperforming the Zacks Building Products – Retail industry’s 26.1% growth. The company currently carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 9%, which speaks of its inherent strength.
The Zacks Consensus Estimate has witnessed an uptrend over the past 60 days as analysts raised their estimates, depicting optimism about the stock’s growth potential. Over the said time frame, the Zacks Consensus Estimate for 2024 earnings per share (EPS) has increased to $2.15 from $2.14. The estimated figure indicates 6.4% year-over-year growth.
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Let’s delve deeper.
Driving Factors
Cost-Control Efforts: Fastenal is actively seeking to control costs to offset cost inflation, especially product and transportation costs. The strategies for the same include automating warehouses, increasing delivery efficiency through its trucking network, and selling more private-level products with higher margins. This will aid the company to improve efficiency level, thereby increasing returns.
In the fourth quarter of 2023, FAST witnessed a notable enhancement in its gross margin, which rose 20 basis points to 45.5% compared with the previous year. This improvement can be attributed to several factors. Firstly, there were notable enhancements in product margins, particularly in fasteners and, to a lesser extent, safety products. Additionally, the company maintained a slightly positive price-cost dynamic, which was facilitated by moderating product costs and a lack of significant pricing adjustments during the period.
Furthermore, the comparison was made easier as FAST largely recovered from the price-cost deficit experienced in the fourth quarter of 2022. These combined factors played a significant role in driving the improvement in gross margin.
Meanwhile, Fastenal’s operating and administrative expenses, measured as a percentage of net sales, demonstrated a notable improvement, decreasing to 25.3% in the fourth quarter of 2023 from a year ago, despite ongoing sluggish sales growth. The key drivers behind this improvement are noteworthy. Firstly, there were overarching endeavors to control costs across the board. Additionally, certain cost categories experienced easier comparisons, resulting in broad but modest leverage of occupancy and other operating and administrative expenses. This positive trend outweighed a slight deleverage in employee-related expenses.
Overall, these concerted efforts and favorable comparisons contributed significantly to the improved management of operating and administrative expenses. Notably, occupancy-related expenses, which represent 15% to 20% of total operating and administrative expenses, increased by a meager 0.7% in the quarter from a year ago.
Focus on E-commerce & Digital Footprint: Fastenal's concerted efforts to bolster its e-commerce capabilities and expand its digital footprint reflect a forward-thinking approach aimed at enhancing customer engagement, driving revenue growth, and fortifying its competitive position in the industrial supply sector.
During the fourth quarter of 2023, daily sales through e-commerce increased 28.3% year over year. Digital footprint (FMI technology plus non-FMI-related eCommerce) contributed 58.1% to sales for the fourth quarter of 2023 versus 52.6% in fourth-quarter 2022. Fastenal’s goal is to hit 66% of sales at some point in 2024, potentially hitting 85% in the long term. It is to be noted that the company started calculating its Digital Footprint in first-quarter 2021, which includes sales through FASTVend, FASTBin and FASTStock, as well as e-commerce. Revenues attributable to eCommerce represented 24.8% of total fourth-quarter 2023 revenues.
2024 Looks Good: Moving forward, management holds a more optimistic outlook for 2024 as they anticipate benefiting from easier comparisons, along with favorable channel inventory levels and positive customer sentiments. The company also expects to sign 375-400 Onsite locations in 2024, up from the 326 signed in 2023. The company targets signing 26,000-28,000 machine equivalent units or MEUs this year through their Fastenal Managed Inventory or FMI technology platform, indicating an increase from 24,126 MEUs signed in 2023.
Higher Return on Equity (ROE): Fastenal’s trailing 12-month ROE is indicative of its growth potential. ROE for the trailing 12 months is 34.3%, much higher than the industry’s 27%, reflecting the company’s efficient usage of shareholders’ funds.
Other Top-Ranked Retail Stocks Hogging in the Limelight
Brinker International, Inc. EAT sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 212.7% on average. Shares of EAT have surged 54.1% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 4.9% and 30.4% growth, respectively, from the year-ago period’s levels.
Texas Roadhouse, Inc. TXRH carries a Zacks Rank #2. It has a trailing four-quarter negative earnings surprise of 3.9%, on average. The stock has gained 61.2% in the past six months.
The Zacks Consensus Estimate for TXRH’s 2024 sales and EPS suggests rises of 14.1% and 25.8%, respectively, from the year-ago period’s levels.
Shake Shack Inc. SHAK currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 92.6%, on average. SHAK’s shares have surged 87.4% in the past six months.
The Zacks Consensus Estimate for SHAK’s 2024 sales and EPS indicates 14.6% and 91.9% growth, respectively, from the year-ago period’s levels.
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