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Fastenal: A Surge for Safety Products?

06/24/2020 5:00 am EST

Focus: INDUSTRIALS

Mike Larson

Editor, Weiss' Safe Money Report

Our Bedrock Income model portfolio focuses on "safe money" investments; our latest addition is a new kind of “safety” play that actually makes safety products, notes growth and income specialist Mike Larson, editor of Safe Money Report.

I’m talking about a company with surging demand for protection products now and the potential for strong sales of other products later. Fastenal (FAST), which started operations way back in 1967 as a distributor of fasteners, bolts, screws, framing systems, rivets and other industrial and construction supplies.

The company began actively diversifying into other products in the 1990s and now sells pumps, electrical gear, sealant, tape, motors and janitorial goods. Customers include construction companies, retailers, hospitals, universities and other private and public organizations.

No doubt Fastenal is a cyclical business. It does better in times when the economy is growing strongly and worse when it isn’t. Right now though, the company has an ace in the hole: Its most significant, non-fastener product line is safety supplies, which represented about 18% of revenue in 2019. 

Products include disposable garments, foot and eye protection, respiratory gear and other personal protective equipment (PPE). Naturally, Fastenal’s PPE has been flying off the shelves to government and healthcare organizations. 

Daily sales surged more than 18% in the first quarter as a whole and 31% in March. Then, in April, they soared almost 120%! Those sales generally carry lower margins. But Fastenal has been taking steps to bolster profit regardless — such as reducing travel, delaying capital spending and lowering incentive pay.

No, second-quarter results likely won’t look fantastic ... especially when compared to the first quarter, when both sales and earnings rose more than 4% year-over-year. But Fastenal clearly has a built-in, virus-related tailwind to carry it over until the economy improves.

Our Weiss Ratings system currently grades FAST a “Buy” and has since Nov. 2017. The firm sports a quarterly dividend payout of 25 cents per share, good for an indicated yield of 2.3% at recent prices. 

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