Saturday, February 18, 2006

Graco (GGG) Analysis

Graco is not the manufacturer of the popular car seats - but in the business of providing equipments for managing fluids for industrial and commercial applications. From, the companies 10-K,

"Graco Inc. (“Graco” or “the Company”) supplies systems and equipment for the management of fluids in industrial, commercial and vehicle lubrication applications. The Company’s products help customers solve difficult manufacturing problems, increase productivity, improve quality, conserve energy, save expensive material, control environmental emissions and reduce labor costs. Graco Inc. is the successor to Gray Company, Inc., which was incorporated in 1926 as a manufacturer of automobile lubrication equipment, and became a public company in 1969.
Headquartered in Minneapolis, Minnesota, Graco serves customers around the world in the manufacturing, process, construction and maintenance, and vehicle lubrication industries. It designs, manufactures and markets systems and equipment to move, measure, mix, proportion, control, dispense and spray a wide variety of fluids and viscous materials.
Graco’s strategic objectives include: increasing the proportion of sales outside North America, expanding its distribution network, penetrating new markets and actively pursuing focused acquisitions where the Company can add significant value. The Company’s long term financial targets include: growing revenue by 10 percent and net earnings by 12 percent per year; achieving returns on sales exceeding 10 percent, on assets of at least 15 percent and on equity of at least 20 percent; generating at least 30 percent of each year’s sales from products introduced in the last three years; and generating at least 5 percent of each year’s sales from markets entered in the last three years. Initiatives for 2005 include the establishment of regional manufacturing, expansion of global sourcing and investment in emerging markets

Graco's business is classified into three segments by management. Industrial/Automotive Equipment, Contractor Equipment and Lubrication Equipment. The break down by sales is 50%, 42% and 8% in each of these sectors.

Let us quickly look at the growth rate and the balance sheets to see how the company is doing and if it is a buy at current prices.

The stock holders equity is about 270 million dollars comes to about four dollars per share. The company has a dividend yield of 0.9%. The dividend yield has increased by about 44% year over year. The company has very clear objectives for innovation, management and growth. The growth in each of the segments for the company is as follows: Industrial/automative section grew by 25% year over year. Contractor section grew by 4% year over year. Lubrication section grew 13% year over year. Net sales increased by 15% compared to the previous year and net earnings increased by 18% compared to the previous year.

The analyst estimates for GGG is to grow around 10% a year for the next two-three years. While the stock is definitely expected to meet or beat these expectations, the current prices are a bit high for the investor to pay to get something from this growth. The analyst estimate available through Yahoo! for the stock is a median target of $38=00 for this stock this year. The current price for the stock is $41.10. Using smart money calculator, the stock is valued at $36=00. It will help the investors to wait for a dip in prices and add to their positions at a price point of below $36=00.

No comments: