Successful acquisitions help this stock increase its earnings and its dividend.
The company completed three takeovers in 2017, including a major European automotive parts group. The added revenue helped earnings beat the consensus estimate. In the meantime, the stock trades at a moderate 15 times forecast earnings and yields 3.2%
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GENUINE PARTS CO. (New York symbol GPC; www.genpt.com) sells replacement auto parts through 1,100 outlets under the NAPA banner; and the company’s distribution business serves 4,900 independent stores in North America, Australia and New Zealand. Genuine also distributes industrial parts, office products and electrical equipment.
In November 2017, the company acquired Alliance Automotive Group. Based in France, that privately held firm distributes automotive parts to 30,000 garages and car repair shops in France, the U.K. and Germany. It does that through 330 company-owned stores and 1,500 affiliated outlets.
Genuine paid $2 billion, which includes Alliance’s debt.
Earlier, the company announced two smaller acquisitions. The first is Apache Hose & Belting Company. Based in Iowa, that firm provides industrial users with belts, hoses, and cut and molded products.
Parts distributor Monroe Motor Products of Rochester, New York, is another recent purchase for the company.
Genuine Parts has yet to reveal how much it will pay for either business. Together, they should add a total of $125 million to its annual sales of $15.4 billion.
Growth by acquisition adds risk. However, Genuine has a history of successfully integrating new operations and improving their profitability.
Value Stocks: Earnings per share rise 16.7%, beat consensus estimate
Thanks to the new operations, Genuine’s overall sales in the fourth quarter of 2017 rose 11.3%, to $4.21 billion from $3.78 billion a year earlier. That beat the consensus forecast of $4.05 billion.
If you exclude costs to absorb the new operations and the positive impact of changes to the U.S. tax code, the company’s earnings gained 15.1% in the quarter, to $175.6 million from $152.5 million. However, due to fewer shares outstanding, earnings per share rose 16.7%, to $1.19 from $1.02. That beat the consensus estimate of $1.05.
The company will increase its quarterly dividend by 6.7% starting with the April 2018 payment. Shareholders will receive $0.72 a share, up from $0.675. The new annual rate of $2.88 yields 3.2%. Genuine has increased that rate annually for the past 62 years.
Genuine’s dividend has now increased an average of 6.0% annually over the last 5 years.
For all of 2018, the company expects its sales will improve by 12% to 13%. It also expects to earn between $5.60 and $5.75 a share. The stock trades at a reasonable 15.2 times the midpoint of that range.
Recommendation in Wall Street Stock Forecaster: Genuine Parts is a buy.
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