Company Reports

We’ve maintained our $51 fair value estimate for Fastenal following the wide-moat industrial distributor’s second-quarter earnings release. The company's daily sales growth rate has been on a downward trend since 2022, with 18.0% in the second quarter of 2022, 5.9% in the second quarter of 2023, and just 1.8% in the second quarter of 2024. Nevertheless, Fastenal’s ability to deliver positive sales growth in a challenging demand environment is a testament to the ongoing success of its growth initiatives, in our view.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands at roughly 1,600 locations. While this expansive footprint is still an important component of Fastenal’s business model, other strategies—including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program—have become increasingly important growth drivers.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands at roughly 1,600 locations. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.

Fastenal reported first-quarter earnings largely in line with our expectations, leading us to maintain our $50 fair value estimate. The time value of money would’ve added $1 to our fair value estimate, but this was offset by us lowering our 2024 sales estimate.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands at roughly 1,600 locations. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands around 1,600. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.

Investors were pleased with Fastenal’s fourth-quarter earnings, pushing shares roughly 6% higher in intraday trading. Despite the tough operating environment, the company managed to grow sales by 3.7% year on year in the quarter and expand gross margins by 20 basis points to 45.5%. Stronger fastener margins and slightly better price/cost management were the main drivers. Operating margins came in at 20.1%, 50 basis points higher than the same period a year ago. This was a solid gain given industrial production has been challenged.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands around 1,600. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands around 1,600. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.

Our $48 fair value estimate for Fastenal remains unchanged following third-quarter earnings. The market sent shares nearly 8% higher following the earnings results. We believe the primary reason behind the positive stock reaction was better-than-expected margin performance. That said, we still view shares, which currently trade 25% above our fair value estimate, as overvalued.

Fastenal’s second-quarter earnings showed continued trends of moderating demand across end markets. However, these trends do not deter us from expecting Fastenal to post positive sales and earnings growth in 2023. Management commented during the earnings call that customers continue to be cautious with respect to the economic environment. For us, the read-through here is that demand is slowing, but not to the level of a protracted downturn. This gives us confidence to project roughly mid-single-digit sales and earnings growth for Fastenal this year, which is notable given the midteens sales and earnings growth in 2022. We made no changes to our discounted cash flow model, but our fair value estimate did tick up by $1 to $48 due to the time value of money since our last update.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands around 1,500. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.

Fastenal’s first-quarter earnings were in line with our expectations. Overall, industrial markets continued to soften, leading to slowing sales growth for Fastenal in the quarter. Management called out slowing activity in the fasteners vertical, which serves original equipment manufacturers. The company’s top line increased roughly 9% year on year. Sequentially, sales growth has continued to moderate each quarter since the second quarter of 2022 (posted high-teens growth). That said, Fastenal has done a good job managing costs. The company’s operating margin came in at 21.2% for the quarter, 20 basis points above the year-ago period. Looking back over the past four years, we see that Fastenal’s current operating margin continues to sit near the high end.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands around 1,500. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands around 1,500. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.

Wide-moat-rated Fastenal reported solid fourth-quarter results to end 2022. We’ve raised our fair value estimate to $46, up from $45 previously. We made slight adjustments to our near-term sales and margin forecasts and accounted for the time value of money since our last update.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands around 1,500. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.

Wide-moat-rated Fastenal posted 16% year-on-year sales growth in the quarter, showing customer demand remains stable, despite cooling in some end markets. The company continues to perform well in the manufacturing vertical. Sales to heavy equipment manufacturers grew by nearly 29% year over year, while total manufacturing sales increased over 22% year over year. Construction sales came in a bit over 5% in the third quarter, down from about 10% year-on-year sales growth in the second quarter of 2022. We expect the U.S. infrastructure deal to stabilize sales growth in 2023, as new construction projects get underway. Management highlighted that contractors typically go to Fastenal later in the construction cycle, often for higher-margin spot buys.

Since opening its first fasteners store in 1967, Fastenal has built one of the largest industrial distribution businesses in the United States. For many years, Fastenal’s growth story was driven by its branch count, which now stands just under 1,800. While this expansive footprint is still an important component of Fastenal’s business model, other strategies--including expanding its product portfolio, its vending and inventory management services, and, most recently, its on-site program--have become increasingly important growth drivers.

We raised our fair value estimate for Fastenal to $45.50 from $44.50 previously to reflect strong sales and margin growth in the near term. We are now projecting 13% top-line growth for 2022 compared with 12% sales growth following the company’s first-quarter results. We raised our revenue expectations to reflect continued strength across many of Fastenal’s end markets, despite supply headwinds and increasing recession fears.