NEW YORK (TheStreet) -- Oppenheimer initiated coverage of Graco Inc. (GGG) - Get Report by upgrading shares to "outperform" from "perform" and a price target of $79, viewing current valuation accommodative and not fully capturing.
Analysts foresee sustained organic growth prospects in the industrial and capital goods space, namely in North American industrial, commercial, and residential markets, as well as sustained margin expansion on improved leverage and acquisition integrations. The company operates in three segments: industrial, contractor and lubrication, designing, manufacturing and selling equipment that meters and dispenses a variety of fluids and semi-solids.
However, Oppenheimer also acknowledged incremental risks to organic and FX European operations, adjusting their model accordingly with recent acquisition accretion offsetting.
In the longer term, analysts believe that M&A and share buybacks will likely provide larger value creation over time.
Shares of Graco are up 1.10% to $68.80.
TheStreet Ratings team rates GRACO INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate GRACO INC (GGG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, expanding profit margins and increase in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 4.1%. Since the same quarter one year prior, revenues rose by 12.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.82, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, GGG has a quick ratio of 1.57, which demonstrates the ability of the company to cover short-term liquidity needs.
- GRACO INC has improved earnings per share by 16.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, GRACO INC increased its bottom line by earning $3.36 versus $2.42 in the prior year. This year, the market expects an improvement in earnings ($3.67 versus $3.36).
- The gross profit margin for GRACO INC is rather high; currently it is at 57.95%. Regardless of GGG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GGG's net profit margin of 20.53% significantly outperformed against the industry.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Machinery industry average. The net income increased by 14.5% when compared to the same quarter one year prior, going from $57.84 million to $66.24 million.
- You can view the full analysis from the report here: GGG Ratings Report