Can Fastenal (FAST) extend the strong momentum into 2023?

Fastenal Company (NASDAQ: FAST), a leading distributor of industrial and construction supplies, has constantly innovated its product portfolio by adopting new technology over the years, all along maintaining its market dominance. Reflecting the growth initiatives and aggressive e-commerce push, last year the company’s e-commerce revenue crossed $1 billion for the first time.

Shares of the Winona, Minnesota-based company have remained largely unaffected by the recent market downturn and outperformed the market quite often. In recent weeks, the stock has remained above its long-term average and the valuation looks high in relation to the earnings trend. So, this is not a good time to buy the stock, rather prospective investors could keep an eye on it and wait for the right opportunity. The company recently raised its dividend to $0.35 per share, a move that should bring cheer to long-term investors.  

Pros vs. Cons

Right now, Fastenal has the qualities of a thriving business, but economic uncertainties and lingering supply chain issues call for caution as far as investing is concerned. The company, which provides manufacturing and construction firms with various products including fasteners, tools, and safety supplies, has expanded its market share in recent years through strategic tie-ups and M&A deals. Last year, profitability improved aided by the management’s favorable pricing actions, though the momentum eased in the fourth quarter when price levels in the market remained stable.

Q1 Estimates

It is expected that Fastenal’s adjusted earnings moved up to $0.50 per share in the first quarter of 2023 from $0.47 per share a year earlier. The bottom line is estimated to have benefitted from a 9% growth in revenues to $1.85 billion. The results are slated for release on April 13, before the opening bell.

From Fastenal’s Q4 2022 earnings conference call:

“The last three months and for the next six months, I’ll be pushing our leadership pretty hard on what we’re doing as far as adding headcount and being really thoughtful about it. I feel good about — set aside the economy for a second, I feel good about the fact that we have 350-plus new Onsites that will be given us juice as we go into 2023, and we didn’t have that kind of number coming into 2022 or 2021. And so there’s some positives there. But as far as the underlying economy, we’re not really sure if the PMI is right or wrong, but we’re playing it, assuming it’s right.”

Key Numbers

Fastenal’s quarterly earnings either exceeded or matched analysts’ estimates regularly in the past three years. The trend continued in the final three months of fiscal 2022 when sales and net profit increased to $1.70 billion and $0.43 per share, respectively, and topped expectations. Meanwhile, reflecting the challenging market backdrop, daily sales growth and onsite location signings decelerated for the third time in a row.

The performance of FAST has not been very encouraging ahead of the earnings, as it has declined about 5% this month alone. The stock traded flat in the early hours of Monday after closing the previous session lower.