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Graco Inc. GGG seems to be a good investment option for investors seeking exposure in the manufacturing space. Its solid fundamentals and growth prospects are compelling. Also, positive revisions in earnings estimates reflect bullish sentiments for the stock.
The company is based in Minneapolis, MN, and has a market capitalization of $9.7 billion. It belongs to the Zacks Manufacturing – General Industrial industry — which, in turn, comes under the ambit of the Zacks Industrial Products sector.
The company presently has a Zacks Rank #2 (Buy).
In the past three months, its shares gained 20.1% as compared with the industry’s growth of 15.7%. Also, the sector and the S&P 500 expanded 17.1% and 14.6%, respectively, during the same timeframe.
Below we discussed why it is prudent to invest in Graco now.
Growth Initiatives: Over time, the company has been investing in innovative products and boost manufacturing capabilities. In 2020, it planned to use $80 million for rolling out machinery and equipment — which includes $50 million dedicated toward the expansion of facilities.
A few of Graco’s product launches include the new line of SaniSpray HP airless sprayers and the three high-production GrindLazer drum scarifiers (DC1520 E, DC1525 P and DC1538 G) in July 2020. In June, the company launched HydroShield Waterborne system and E-Flo iQ adhesive and sealant dispense system.
Other Tailwinds: Graco seems to be well-equipped to effectively deal with the coronavirus-led challenges. It has a solid customer base in various end markets — including construction, industrial & machinery, automotive, oil & natural gas, and others. In addition, the company’s efficient management team, running global operations and a healthy liquidity position are its advantages.
In the years ahead, it targets to achieve 10% compounded annual growth in revenues (including 5-7% CAGR for organic revenues and 3-4% CAGR in acquisitions) and 12% compounded annual growth in earnings.
Rewards to Shareholders: The company is committed toward rewarding shareholders handsomely through dividend payments and share buybacks. Notably, it distributed dividends totaling $58.5 million in the first half of 2020, reflecting an increase of 10.2% from the year-ago period. Also, during the same timeframe, the company bought back shares worth $102.1 million, up from $2.4 million in the first half of 2019.
It is worth mentioning here that the company announced a hike 9.4% or 1.5 cents per share in its quarterly dividend rate in December 2019. We believe that a healthy cash flow position will help it in rewarding shareholders, going forward.
Earnings Estimate Trend: Its earnings estimates have been revised upward in the past 60 days. Currently, the Zacks Consensus Estimate for its earnings is pegged at $1.57 for 2020, reflecting growth of 18.9% from the 60-day-ago figure. The same for 2021 has increased 10.3% to $1.82 during the same period.
Graco Inc. Price and Consensus
Graco Inc. price-consensus-chart | Graco Inc. Quote
It is worth noting here that seven upward revisions have been recorded for both 2020 and 2021 in the past 60 days. There has been no downward revision in earnings estimates in the past two months.
Also, the consensus estimate for the third quarter of 2020 is pegged at 41 cents, reflecting growth from 33 cents mentioned 60 days ago.
Other Key Picks
Three other top-ranked stocks in the industry are Tennant Company TNC, Altra Industrial Motion Corp. AIMC and Roper Technologies, Inc. ROP. While Tennant currently sports a Zacks Rank #1 (Strong Buy), both Altra Industrial and Roper Technologies carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for these companies have improved for the current year. Further, earnings surprise for the last reported quarter was 380.00% for Tennant, 76.47% for Altra Industrial and 10.11% for Roper Technologies.
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Graco Inc. (GGG) : Free Stock Analysis Report
Roper Technologies, Inc. (ROP) : Free Stock Analysis Report
Altra Industrial Motion Corp. (AIMC) : Free Stock Analysis Report
Tennant Company (TNC) : Free Stock Analysis Report
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