Genuine Parts: multinational spare parts distributor
Genuine Parts is mainly focused on the supply of spare parts in the automotive sector. But this is not its only activity. It has several other divisions that focus on electronics or office supplies. The stock has mostly sold off recently, which has gotten its price below its intrinsic value. What are the prospects for this long-standing dividend stock?
Founded in 1928, the company's core business is providing replacement parts for automobiles, trucks and other transportation equipment, as well as supplying industrial components that are used in a wide range of applications.
$GPC+0.3% owns and operates brands such as NAPA Auto Parts, which is a network of automotive parts stores, and Motion Industries, which focuses on industrial components. The company is known for offering quality products and a wide range of branded parts from leading manufacturers.
With a growing global reach, GPC operates in more than 15 countries and has thousands of distribution centers and branches. Genuine Parts Company is a major player in the automotive and industrial sectors, with operations spanning both wholesale and retail distribution.
The company is ranked in the Fortune 500. This April, after its quarterly results, the company's significant increase in price made it the number one growth company of the entire index on any given day (4/18/2024).
Management
William P. Stengel - CEO
William joined the Company in 2019 as Executive Vice President and Chief Development Officer with nearly two decades of significant leadership and professional experience.
He was promoted in 2021 to serve as only the eighth President in the Company's history. His role expanded to President and Chief Operating Officer in 2023.
Prior to joining GPC, he held various leadership positions at HD Supply, including as President and CEO of HD Supply Facilities Maintenance, as well as at The Home Depot and in various investment banking roles.
If you're interested in learning more about the CEO himself, you can check out his personal Linkedin profile, where he is active and shares the company's successes. He also has his entire educational and work history there.
Industry/Specialization of the company
Automotive Parts: $GPC is a major supplier of parts for cars, trucks and other transportation equipment. Under the NAPA Auto Parts brand, it provides a wide range of products such as brake systems, filters, batteries, oils, spark plugs and other parts needed for vehicle maintenance and repair.
Industrial Components: Through its Motion Industries division, the company focuses on the distribution of industrial components and tools. This includes bearings, hydraulic systems, electric motors, conveyors, seals and other equipment that is essential to manufacturing and industrial operations.
Electrical and electronic components: The Company also distributes electrical and electronic components that are used in the automotive and industrial sectors. This includes wiring harnesses, electrical connections and various sensors.
Maintenance and Repair: In addition to parts distribution ,$GPC+0.3% also provides maintenance and repair support to the automotive and industrial sectors. It offers services for mechanics, industrial technicians and maintenance professionals.
Specialty and Technical Products: Genuine Parts also offers specialized products that are designed for specific technical applications. This includes parts for aerospace, energy and other industries where highly durable and technically advanced components are required, such as specialty lubricants, filtration systems or protective equipment for electrical and mechanical systems.
Company profitability and cash
The company's current market capitalization is $18.91 billion. While this is a high figure when compared to the pre-2020$GPC+0.3%stock price , it is also quite far from the peak. The company's highest value to date was in 2022. Back then, the price per share was still 37.7% higher than it is today.
More than 60,000 people now work for the company worldwide. It is thus a very large enterprise that has made its name in the market. The company's debt is now $5.2 billion with management having $555.3 million in cash on hand.
If we look at the stock split we find that there are only 515,000 shares privately held, which is equivalent to 0.37 of all shares ever issued. The remainder, 138.8 million shares, are distributed in the market to investors.
In 2019, the company's revenue was $17.52 billion. Operating margins at that time were at 3.6%. Thus, net income in that year was $630 million. In the coming year, when pandemics and closures hit the world, the company's profitability dropped to 1.18%. Of the revenue that dropped to $16.54 billion, the net profit was $194.83 million. But in the last three years, the company has been doing well again. In all the years since 2020, it has been able to increase its revenue and profitability. This, of course, is also associated with an increase in net profit. This has risen to $1.18 billion by 2022. Last year it was already $1.32 billion. Revenue last year was $23.09 billion and profit margin was 5.7%.
The company made $15.25 billion in the United States last year. That figure is equivalent to 66.03% of the company's total revenue in 2023. So it's clear that the U.S. is still the number one priorityfor $GPC+0.3% Europe was second in revenue size with $3 billion and $610 million. This was followed by Australia with $2m15bn and Canada with $2.01bn. Mexico then added the last $70m in revenue.
Automotive is the largest section of the company's business, accounting for 61.7% of their revenue. The remaining 38.2% comes from the other businesses section. These are mainly the industrial ones.
Earnings per share were at $4.64 in 2017. The company managed to beat the market consensus by 0.1% with this figure. The company has been consistently delivering great results since then, and so it continues to beat market estimates. It has always been in the green for the past 7 years. By 2019, the EPS had reached $5.69. In 2020, they dropped to $5.27, but still beat estimates. In the last three years, their value has only gone up. Earnings per share were $8.34 in 2022 and $9.33 last year. By 2026, the company is expected to get over $10 with EPS of $10.86.
For revenue, we can see a very similar growth story. In 2017, revenue was $16.31 billion. This revenue figure was 0.64% above the market consensus. However, for revenue, the company could no longer maintain a flawless trajectory. Revenue fell to $16.54 million in 2020 thanks to a decline from $19.39 million in 2019. The market was expecting a value 2.17% higher this year. As with earnings per share, revenue has been on the rise for the past three years. Revenue was $22.1 billion in 2022 and $23.09 billion in 2023. As a result of the current outlook, $GPC+0.3%'s revenue is expected to continueto move higher. By 2026, they are expected to reach $25.6 billion.
Thus, total revenues are moving higher and higher. But what about the revenue breakdown by the company's two main sectors. Are they both doing well? The company's main component, automotive, brought in $GPC+0.3%s revenue of 8.66% in 2017. By 2019, that figure has climbed to $10.99 billion. In 2020, it will decrease, but only very slightly, to $10.86 billion. Last year, revenue from the company's largest sector was $14.25 billion.
The Industrial section earned the company revenue of $4.97 billion in 2017. It has grown sequentially in all years except 2020. This moved it to $8.84 billion by 2023.
Operating expenses
The company has historically watched its expenses very closely. In 2010, it spent "only" $200 million per quarter. This figure has increased in subsequent years, but not in a revolutionary way. By 2013, it had risen by 10% to $220 million. At its highest point at that time, quarterly spending was in 2014. In that year, spending for one quarter was $310 million. From that amount, management resorted to cuts. This was very slow and, with the exception of the increase between 2016 and 2018, lasted until 2020 when it reached its bottom. From then on, spending rose until 2023. They got as high as half a billion dollars in one quarter in 2022. For the second quarter of this year, the company, which has rising revenues, paid "only" $398 million.
Dividend
Genuine Parts Company is known for its dividend, which it has been paying since 1977. Thus, it ranks among the dividend aristocrats. Shareholders received their first payout of 3 cents. From the very beginning of the dividend, the payout has been allocated to shareholders quarterly. This was not the custom of all companies at that time. By 2020, the company had gone through a total of five stock splits. With these, the face value of the dividend was reduced. In 2000, the quarterly payout per share was at $0.275.
Since then, the dividend has only increased as there have been no splits since then. The quarterly payout has remained. Currently, stockholders can look forward to a dividend of $1 per share of $GPC+0.3%held each quarter . The annual dividend yield is 2.95%.
Valuation/Comparison to peers
The company's P/E ratio stood at 9.9 in 2010. However, its value increased only very slowly over the next five years. Thanks to the steady growth in earnings per share and the share price itself, there were no sharp fluctuations. In 2015, the P/E ratio was 15 points. But by 2019, its value had climbed to 22.12 points. In fact, EPS experienced a minor decline in mid-2018. But with a significant drop in 2020, the P/E has come down to just under 300 points. But it didn't stay there for long and immediately fell to 20. Since then, the company has been increasingly successful. Its EPS and sales have been rising, and so the P/E ratio is slowly getting lower. It is currently 15.81.
Rivals
AutoZone, Inc. $AZO-0.9%: AutoZone operates thousands of stores not only in the United States, but also in Mexico, Brazil, and other Latin American countries. Their product line includes replacement parts for engines, batteries, brakes, filters, oils, wipers, and various automotive accessories. The company also offers free services such as battery and alternator diagnostics, wiper replacement and engine code testing. The company has long been ranked among the top U.S. Fortune 500 companies.
CarParts.com, Inc. $PRTS+7.2%: The company focuses on providing affordable, quality auto parts through its e-commerce model that allows customers to conveniently order parts online. The company offers a wide range of products, including body parts, lights, engines, brakes, suspension, exhaust systems, and interior accessories. The company caters to both do-it-yourself (DIY) vehicle owners and professional mechanics. With advanced logistics systems and efficient inventory management, it is able to ship quickly throughout the United States.
LKQ Corporation $LKQ+0.1%: LKQ focuses on selling a wide range of parts, including original equipment, aftermarket replacement parts, recycled parts and refurbished components. One of LKQ's key strengths is its extensive network of distribution centers around the world, which enables fast and efficient delivery of automotive parts. The company operates not only in the United States, but also in Europe, Latin America and other regions, making it a global leader in the automotive industry. LKQ Corporation owns several subsidiaries, such as Keystone Automotive and Euro Car Parts, which help it expand its reach into different markets.
Blue - $GPC+0.3%, Orange - $PRTS+7.2%, Green - $AZO-0.9%, Black - $LKQ+0.1%
Comparing these companies by chart, we can notice at a glance that $PRTS+7.2% has done the most since 2020. This is mainly related to its market capitalization, which is easily the lowest of the companies compared today. Indeed, it is only $52 million. This explains the huge growth but also the fall in its price. However, in the final tally, it came in last place with a loss of 44.44% over the last 4 years and 8 months. On the other hand, $AZO-0.9% has fared the best , with a 165% appreciation to date since 2020. Companies $GPC+0.3% and $LKQ+0.1% are up 26% and 8% respectively.
Future plans
Digitization and technological innovation: GPC plans to continue to invest in digitization and technology development that will improve its distribution and business processes. The company is looking to strengthen its online presence and e-commerce platforms to provide customers with an efficient and user-friendly environment to purchase spare parts. This includes the development of digital tools for inventory management, ordering and delivery tracking.
Expansion into international markets: While GPC already operates in several countries around the world, the company plans to continue expanding its global reach. This includes entering new markets in Asia, Latin America and Europe, where it sees opportunities for growth and increased market share. The aim is to strengthen its international distribution networks and offer customers in these markets quality products and services.
Improve customer service and logistics: As part of its strategy to improve customer experience, GPC wants to strengthen its distribution capabilities and optimise logistics. This includes investing in new warehouses, better inventory management and streamlining the supply chain to provide faster and more accurate deliveries to customers.
Strategic acquisitions: GPC plans to continue to use acquisitions as a key strategy for its growth. The Company will actively seek opportunities to acquire smaller businesses in the automotive and industrial sectors, which will allow it to expand its product offerings and geographic presence. The company's most recent acquisition was announced on May 1, 2024, which was Motor Parts & Equipment Corporation.
Outlook
Since the company hit a price of $188 per share, a new all-time high in 2022, the stock has only been falling. It is currently 29.33% away from said peak. The last results that were reported on June 23 did get the stock higher in the next 5 days, but now all that growth is there. Neither earnings per share nor sales have managed to beat estimates. But the stock is now trading below its fair price due to this decline. That's at $176 per share, according to the Fair Price Index on Bulios. So the company has room to grow as much as 29.7% by that metric. But do Wall Street analysts' estimates match that?
Of the 16 analysts polled, 4 of them would buy the stock immediately. Their estimates for the coming 12 months are positive. The most optimistic ones expect the price to rise by up to 24.5%. If that were to happen, one share would sell on the market for $165. The other 12 analysts agree that they would hold the company for now. Thus, none of them would sell. Do you have this company in your portfolio?
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