Skip to Content
Stock Analyst Update

Fastenal's Strong Top-Line Growth Continues

The wide-moat industrial distributor's growth is being driven by improving end market demand and the company's vending and onsite growth efforts.


 Fastenal (FAST) reported strong third-quarter results, in our view, that beat consensus revenue and EPS estimates for the second consecutive quarter. Third-quarter revenue increased 13% year over year for the wide-moat-rated industrial distributor to $1.28 billion, beating consensus by about $7 million. And adjusted diluted EPS of $0.68 increased 36% year over year, beating the $0.67 consensus estimate. Yet, Fastenal's earnings release triggered its stock to sell off, presumably due to the 100-basis-point year-over-year decline in the firm's gross margin and uncertainty surrounding the potential impact of tariffs. However, like previous quarters, much of the gross margin decline was due to a continued mix shift toward lower-gross-margin nonfastener products and national accounts. Higher freight costs also weighed on gross margin during the quarter. Despite the 100-basis-point gross margin contraction, Fastenal's operating margin expanded 30 basis points to 20.5%, which demonstrates Fastenal's ability to leverage its fixed costs. Incremental operating margin during the third quarter was 23%, up from approximately 21.5% last quarter and 16.5% during the first quarter. We've raised our fair value estimate of Fastenal's stock to $55 per share from $54, as the favorable impact from the time value of money since our last update and our downward-revised operating expenses as a percentage of sales assumptions more than offset our tempered gross margin assumptions.

Fastenal continues to enjoy strong organic revenue growth driven by improving end market demand and the company's vending and onsite growth initiatives. Fastenal's industrial vending and onsite strategy continues to gain traction with customers, supporting the firm's strong growth. At the end of the quarter, 78,706 Fastenal vending machines were installed at customer facilities, up 14% year over year, and the firm had 828 active onsite locations versus 555 onsite locations last year.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Brian Bernard does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.