Fastenal Falls To The Buy Zone: But Wait To Buy More

Key Points

• Tepid results do not overshadow the company’s strengths.
• The company produced $1.88 billion in net revenue for a gain of 5.9% compared to last year.
• The best target for solid support is the 150-day moving average, nearly $54.

Fastenal NASDAQ: FAST fell following its Q2 earnings release and could fall further. The caveat is that tepid results do not overshadow the company’s strengths, including a solid balance sheet, an improvement in cash flow, share repurchases, and dividend payments. While q2 results were less than hoped, they aligned with the analyst's consensus, which called for growth.

In this scenario, the stock price may continue to dip within its trading range, but there should be solid support at the bottom of the range, if not higher. The market is sitting on a critical support level now; if support confirms in the next few days, the market could begin to rebound over the summer. 

Fastenal Has Tepid Quarter? Mixed Results Weigh On Price Action 

Fastenal had a tepid quarter but only regarding the analysts’ expectations. The company produced $1.88 billion in net revenue for a gain of 5.9% compared to last year. The revenue missed the consensus by a slim $0.010 billion or 0.5% but an improvement in margin offsets that. Data within the revenue figure reveals the company’s diversification and industry-supporting strategy are working. 

Sales were driven by an increase in Onsite locations offset by weakness in construction and reseller markets. Other led with a gain of 9.8% on a segment basis, with Safety close behind at 8% and Fasteners holding steady compared to last year.

Manufacturing led on an end-market basis, with non-residential construction and others both falling. On a business-size basis, national accounts grew by 10.2% and Non-national by 0.2%. If there is a takeaway for the broad economy, it is that national-level manufacturers are buying safety and other products from Onsite systems. 

The margin news is the best in the report. Margin contracted at the gross and operating levels but less than expected. The operating margin fell 60 bps, leaving the GAAP EPS at $0.52. This is up 4% compared to last year versus the topline growth of 5.9%, as expected compared to the top-line miss.

The takeaway is that business is slightly better than expected and is expected to remain steady, if not grow, in the coming quarters. The company continues to add new Onsite locations, the count is up 15% YOY, and deepen penetration of existing markets. 

The Analysts Are Holding: The Institutions Are Buying 

The analysts' sentiment toward Fastenal will not drive the market higher but will support the market. The analysts have the stock pegged at Hold with a price target trending higher but assuming fair value at current price levels. That’s near $56.50 and potentially strong support near the middle of a trading range.

If support starts at this level, the market should consolidate near its high, possibly moving higher later in the year. As for the institutions, they own about 77% of the stock and have been buying on balance for the last year. Buying outpaces selling by 1.65:1 has netted about 3% of the post-release market cap. Buying ramped higher in recent quarters, coincident with a bottom and reversal in the price action. 

The chart is a little iffy but shows a market in reversal. The post-release drop in price action is a correction within a larger movement that should result in a buying signal. That signal could form at the current levels or lower. The best target for solid support is the 150-day moving average, nearly $54. The market may stall at its current level, near $56.50, and allow the EMA to catch up. In that scenario, the stock could retest the recent highs by the end of the year.