Genuine Parts Company (NYSE: GPC) has had its share of ups and downs, but along the way, it has proven the value of Dividend Kings. Dividend Kings and their 50+ year history of distribution increases have proved an ability to operate in all markets, a willingness to change with the times, and the foresight to manage the business to generate long-term returns for shareholders.
In the case of Genuine Parts Company, a multi-year transformation from an auto-parts manufacturer into a global auto and industrial parts manufacturer sustains business and high-single-digit growth and powers an attractive dividend. The significant takeaway from the Q1 results is that margin improved, earnings were better than expected, growth is in the forecast, and the dividend is safe.
Genuine Parts Company Revs Higher On Solid Outlook
Genuine Parts Company had a strong quarter driven by results in both segments and most operating regions. The company reported a record $5.8 billion in revenue, up 8.9% compared to last year, and beat the Marketbeat.com consensus by 200 basis points. The strength was driven by the newer Industrial segment, which grew by 11.9%, while the legacy Automotive segment grew by 7%.
The margin news is also good. The company lost margin in the Automotive group, but the 60 basis point decline was offset by a 230 bps improvement in the Industrial segment. This led to a 24% increase in net income, 15% adjusted, and earnings 430 basis points better than expected. Turning to the guidance, the outlook is equally robust.
The company reaffirmed its expectation for revenue growth in the range of 4% to 6% but raised the guidance for earnings. The company expects earnings to top the previous high-end and for cash-from-ops to come near $1.35 billion.
"We are pleased with the solid start to 2023 and continue to expect another strong year of profitable growth. Our updated outlook for the full year reflects our confidence in our strategic plans and ability to execute through continued economic uncertainty. We believe GPC is well-positioned with the financial strength and flexibility to support our growth plans and provide for disciplined capital allocation and enhanced shareholder value," Mr. Donahue concluded.
Genuine Parts Company, You Pay A Premium But Get A Deal
The valuation of GPC stock is a bit high at 18X earnings, but it’s not astronomical, and you get a lot for the money. The company’s cash flow is sufficient to cover the 2.28% dividend yield while buying back shares, managing debt, and investing in the business. The payout ratio is low at 43%, considering the number of distribution increases and suggests this company could become a King twice over. The distribution growth rate isn’t high, but 6% CAGR is also better than what most Dividend Kings are running.
The analysts are holding the stock but see it trading slightly lower than now at $168. The caveat is that the most recent report came out just a few weeks before the release and upgraded the stock to Buy. That rating is from Truist, which sees the market trading at $186 or about 10% above the post-release price action. If that sentiment is echoed now that the report is out; this stock could complete its reversal. However, the market faces resistance at the $170 level. In this scenario, the stock may trend sideways at current levels until later in the year. If the market can get above $170, it may increase to $180.
