On Thursday, RBC Capital sustained its optimistic stance on Graco Inc . (NYSE:), maintaining an Outperform rating with a steady stock price target of $103.00. The firm’s evaluation came following investor meetings on Monday and Tuesday, where discussions centered on Graco’s robust profitability and return on invested capital (ROIC), despite its exposure to cyclical markets in spray paint finishing and specialty pumps/meters.
The company’s executive vice president and corporate controller shared insights into Graco’s consistent performance, which RBC Capital attributes to the company’s strategic market segmentation, new product introductions (NPI), and strong pricing power. Notably, Graco’s business model includes a significant portion of recurring revenues, accounting for 40% of its income, which contributes to the company’s financial stability.
Graco’s success is also linked to its efficient use of manufacturing automation, which is tailored to its low-volume/high-mix product lines. This approach has allowed the company to generate profitability that is among the best in its sector. Moreover, Graco’s financial position is solid, characterized by a net cash status and a relative valuation that is currently below its three-year relative price-to-earnings (P/E) support level.
The recent investor meetings did not reveal new information regarding the company’s business trends, which were last disclosed in April. Instead, the focus was on the underlying factors that enable Graco to outperform within its industry niche.
In conclusion, RBC Capital’s reiterated rating and price target reflect confidence in Graco’s ability to maintain its competitive edge and financial performance, underpinned by its unique business strategies and operational efficiencies.
In other recent news, fluid handling systems manufacturer Graco Inc. reported a sales decrease of 7% to $492 million and a 5% dip in net earnings to $122 million in its first-quarter earnings call. Despite this, the company experienced an uptick in its gross margin rate and continues to anticipate low single-digit growth in its full-year revenue guidance.
Adjusted non-GAAP net earnings saw a 12% decrease to $113 million, while operating expenses increased by $5 million due to higher stock-based compensation and investment in new product development.
Cash flow from operations improved by $28 million to $119 million and the company remains confident about forthcoming product launches. Despite a slowdown in sales in the semiconductor market and industrial equipment markets, positive customer feedback on new product releases and increased activity in defense, solar, and protective coating markets were noted.
Sales in Europe, particularly in the protective coatings and foam segments, were robust. In addition, Graco Inc. is actively pursuing merger and acquisition opportunities, indicating a strategic focus on market expansion.
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