Fastenal Pitting Operational Excellence Against A More Challenging Macro

Long a margin leader in the industrial MRO distribution space, not to mention a growth leader, Fastenal (FAST) has been reporting incremental margins north of 20% coupled with double-digit sales growth. A downturn in manufacturing PMI doesn’t bode as well for near-term revenue growth, and tariffs could still challenge the price/cost balance in 2019, though the company still has some opportunities with pricing and operational efficiency moves.

Fastenal’s margin superiority has never translated into significant free cash flow superiority over peers like MSC Industrial (MSM) or Grainger (GWW), but the shares have never been held back by DCF-based valuation. Strong margins and ROIC should support a forward EBITDA multiple a little above 14x, but that doesn’t leave much upside from here unless Fastenal can drive some outperformance on margins and/or revenue.

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Fastenal Pitting Operational Excellence Against A More Challenging Macro