Genuine Parts: Vast Distribution Scale and Favorable End Markets Prompt Solid Growth Trajectory

We lowered our fair value estimate for narrow-moat-rated Genuine Parts to $146 from $161 previously, and currently view shares as fairly valued. The lower fair value estimate primarily stems from our more subdued long-term operating margin forecast of 8.0%, from 9.5%. While we expect the firm to deliver modest margin expansion in the future as it prioritizes investments to improve operational efficiencies, we believe the company’s margin profile has already benefitted significantly from outsize comparable sales growth and cost leverage in recent years, making us wary of the durability of current margin levels if demand shows signs of abating. We forecast a long-term EBITDA margin for the industrial segment of about 11.5%, about 300 basis points ahead of 2019 levels but down from its current trajectory of around 12.5%. We also forecast an EBITDA margin of 9.8% for the firm’s automotive segment, up about 40 basis points over its 10-year average.