So far I looked at Genuine Parts only once in March and I posted quite a straightforward question – what can go wrong?

Well, after a share price rally from January to March it was a consolidation at around $95 – $105 and then weak results for Q3 2016 came. Share is down at $90 – is it a right time to buy? It is a Dividend King, so each discount should be closely analyzed by Dividend Growth Investors. So… let’s look closer.

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

Last results are presented below:

image001

And short comment:

Our third quarter results fell short of our expectations. We continue to operate in a tough sales environment, but our teams are working hard to overcome these challenges and generate growth. We recognize there is room for improvement and are working towards that in all aspects of our business. Our goal is to show improved results in the quarters ahead and better position the Company for sustainable growth well into the future. We have a strong balance sheet and excellent cash flows to support our efforts

Well, I am not an expert, but generating sales is always a tough task. Why should it be better in coming quarters? On the other hand we can note, that many companies are complaining on tough environment. Why is that so? Economy is doing well in US, isn’t it?

As it comes to updated/slashed guidance:

For 2016, Genuine Parts expects annual revenue to range from flat to up 1% from 2015, lower than the previous expectation of 1%–2% improvement. Earnings per share in 2016 are expected to be in the range of $4.55–$4.60 compared to the previous projection of $4.70–$4.75.

Guidance is now lower by around $0.15 for a whole year. Assuming P/E 20 and that results will be lower forever it means, that share price should drop by $3, while it went down by around $8. Way too much.

Valuation on next year’s consensus (probably will go down):

EV/EBITDA = 10

P/E = 18

Dividend yield = 3%

Well, it is still not cheap, even if we consider some premium for high quality.

 

Summing up, I do not know GPC so well, but I see that after recent share price plunge it is definitely a good idea to have a closer look and watch GPC regularly. For now I will keep my investable level unchanged at $80.

 

Disclosure GPC – no position