Buy Genuine Parts Company While You Can Still Get It Cheap

Genuine Parts Company Is A Value For Dividend Growth Investors

In the quest for value, investors should not discount Genuine Parts Company NYSE: GPC. It is not a lightly valued stock at 21X this year's earnings and 19X next year's earnings but it is one of the higher quality dividend growth stocks you will find. The company just reported an arguably mixed quarter but one that we see leading to even better results down the road. Among the key takeaways from the report are that earnings from continuing operations are up double digits and set a new record, the company strengthened its already very strong balance sheet, and the company raised its guidance for revenue and earnings in 2021.

A Good And Mixed Quarter For Genuine Parts Company

Genuine Parts Company really had a great quarter in regards to the expectations. We say that it is mixed because all of the positives are marred by the fact the 2-year comp is still negative. That said, the two-year comp of -3% is a slim margin and one that we're not overly concerned with. Sequential and year-over-year revenue growth is expected to continue for the next two quarters at least. In that light, we see the company regaining and surpassing the pre-COVID revenue levels by the end of the year and expect to see revenue strength continued in 2022 supported by the used car market. We all know the used car market is one of the hottest markets in America today. 

Genuine Parts Company reported $4.78 billion in net revenue to beat the consensus by 1000 basis points. That's good for sequential growth of 7% but is versus a very easy coMp in the previous year. Last year the company's revenue contracted by 22% leaving the 2-year comparison in negative territory. The revenue gains were driven by strength in both operating segments which is good news. The automotive segment grew 28% year-over-year to account for 67% of the net. Automotive Sales improved on a 21% increase in comps, a 2% increase related to acquisitions, and a 5% tailwind from foreign exchange that should not abate in the second half. The Industrial Parts segment grew by 19.6% on a 16.4% increase in comps and a 2.4% tailwind from foreign exchange.

The revenue strength carried through to the bottom line although the earnings results are a little mixed as well. The GAAP earnings of $1.36 miss by $0.20 due to a slight increase in business investment. On an adjusted basis, the non-GAAP EPS of $1.74 is up 31% from last year and beat the consensus by  $0.20. 

Looking forward, the company is expecting to see business strength carry into the second half of the year and has revised its guidance accordingly. The company is now expecting to see full year revenue growth in the range of 10% to 12% versus the consensus of 7% and the prior guidance of 5% to 7% and we think this is cautious. Economic tailwinds appear to be strengthening and should result in another guidance increase at the end of the third quarter.

Genuine Parts Company Is One Safe Dividend

The three things that stand out about Genuine Parts Company’s dividend are its safety, the outlook for growth, and yield.  The stock is yielding about 2.5% with shares trading near $129, the balance sheet is a fortress, and the company has been increasing the payout for 64 years. The pace of future increases may be slow but we can trade that off for the market reading yield and Sleep-safe-at-Night safety.

The Technical Outlook: Genuine Parts Company Is Range-Bound

Shares of Genuine Parts Company should be moving higher in the wake of the Q2 report and guidance improvement but weak hands and profit takers are capping gains. Price action popped in the pre-market action but has sold off in the early part of the day. The candle confirmes the presence of support but should be taken with a grain of salt because it's still early in the day. By the end of the day, things could look much different. That said, we see resistance at the $132 level that could keep the stock range-bound between  $120 to $132 for the foreseeable future.