Linked here is a detailed quantitative analysis of Genuine Parts Company (GPC). Below are some highlights from the above linked analysis:

Company Description: Genuine Parts Co is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

GPC is trading at a premium to all four valuations above. The stock is trading at a 14.6% premium to its calculated fair value of $46.81. GPC did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

GPC earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. GPC earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1948 and has increased its dividend payments for 55 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

The NPV MMA Diff. of the $386 is below the $500 target I look for in a stock that has increased dividends as long as GPC has. If GPC grows its dividend at 4.8% per year, it will take 4 years to equal a MMA yielding an estimated 20-year average rate of 3.9%. GPC earned a check for the Key Metric ‘Years to >MMA’ since its 4 years is less than the 5 year target.

Memberships and Peers: GPC is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company’s peer group includes: Advance Auto Parts Inc. (AAP) with a 0.4% yield, AutoZone Inc. (AZO) with a 0.0% yield and W.W. Grainger, Inc. (GWW) with a 1.6% yield.

Conclusion: GPC did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks GPC as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $50.39 before GPC’s NPV MMA Differential increased to the $500 minimum that I look for in a stock with 55 years of consecutive dividend increases. At that price the stock would yield 3.57%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 5.4%. This dividend growth rate is slightly above the 4.8% used in this analysis, thus providing no margin of safety. GPC has a risk rating of 1.25 which classifies it as a Low risk stock.

GPC’s long string of dividend increases are supported by its strong underlying fundamentals of sales, earnings and free cash flow growth. The company exhibits excellent financial leadership as evidenced perseverance through the recent downturn. From an operating standpoint, GPC has an extensive distribution network and it has built a loyal customer following over the years. Since the company is trading well above my buy price of $46.81 and slightly above the $50.39 maximum price supported by its dividend fundamentals, I will wait for a pullback before adding to my position. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in GPC (2.2% of my Income Portfolio). See a list of all my income holdings here.

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The company’s results reported on Mar. 3, 2009 showed quarterly sales up 8% to $1.45 billion and  earnings up 21%, to $2.03 a share, which beat analysts’ forecasts. As one would expect, the operating results carried over to the stock price. Shareholders of AZO have benefited greatly during the last 12 months having seen its stock price climb from $120 in April 2008 to over $165 on April 1, 2009.

It is no longer just guys dressed in starter jackets and DeWalt hats that are frequenting stores, but AZO now serve a much more diverse customers base. In Kenosha, WI, a Jaguar pulls up in the parking lot – “Check that out,” says an AZO regional manager who’s visiting for the day. “You don’t see that too often” – and the driver walks into the store to ask how to buy spark plugs. A few minutes later, a young yuppie-ish couple in Abercrombie & Fitch sweatpants park their Volkswagen Jetta in the lot and ask an employee to help them find the battery. Can AZO’s rise continue?

Analyst John Lawrence of the investment firm Morgan Keegan believes so.  Favorable “industry tailwinds should continue, with sharp declines in new-car sales and a record number of aged vehicles on the road.” That and the trend of closing car dealerships, he adds, bodes well for higher demand in the commercial repair shops. AZO is well positioned to benefit from an improving sales trend and it has the resources and strategy to gain market share from its competitors. So what’s the problem with AZO?

Unfortunately for income investors, AZO doesn’t pay a dividend. That’s not to say we can’t participate in this rally, we just need to find the right stock.  One that might fit the bill is Genuine Parts Co. (GPC) – a leading wholesale distributor of automotive replacement parts.

GPC serves about 5,800 NAPA Auto Parts stores (retail), including about 1,100 company-owned stores. In addition, it sells directly to garages, service stations, car and truck dealers, fleet operators, leasing companies, bus and truck lines, etc.  Unlike AZO, GPC is a Dividend Achiever that has increased its dividend for the last 53 consecutive years. Its stock currently yields over 5% and was last reviewed on March 16th. GPC plans to release First Quarter Earnings on April 16, 2009 and management will conduct a conference call on this date at 11:00 a.m. Eastern time.

Full Disclosure: No position in the aforementioned stocks.

References:
- AutoZone Is in the Fast Lane
- AutoZone zooms