Genuine Parts is founded in 1928 company distributing variety of parts – mainly for automotive, industry, office products and electrical devices.

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This is mostly repetitive business as for example in automotive segment people will need parts for replacement in broken cars regardless of economic conditions. Moreover NAPA brand is well known and have strong market position.

Generally if we look on drivers and opportunities future for company is rather good.

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If prospects are good the question is what can go wrong?

For now I see no significant risk, but ratios like cash conversion or working capital cycle are so good now that they can deteriorate.

 

As it comes to financials (estimates):

Market cap ~ $15B

Net debt ~$0.5B

Payout ratio ~55%

Beta = 0.8

Dividend yield 2.7% + share buyback, in 2015 2%, total yield around 4.5 – 5%

 

Estimated valuation ratios:

EV/EBITDA = 11.2

P/E = 20.5

 

Genuine Parts is one of The Dividend Kings paying increasing dividends since 1967 year. Currently dividend yield is around 2.7% – rather low from historical point of view. Buyback is decent, but together yield of around 4.5 – 5% is nothing special for me (growth is expected to be around 8%).

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Drawdown risk analysis:

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Drawdown risk analysis shows that shares are around all time high levels. Similarily to other companies – it is not a good time for investment (in my opinion). Moreover valuation is rather demanding. I think that levels from the beginning of the year are attractive ($80) -> then DY is around 3.3%, EV/EBITDA around 9.3 and P/E around 17.

 

Summing up, every single one Dividend King should be an awesome long term investment and the same is true for Genuine Parts, but I don’t think it is the best time to invest now. What has changed in company over last two months that valuation is $2.5b higher? I am waiting for special occasion and I think it is not now…

 

Disclosure GPC – no position