Genuine Parts Co. $42 - New York symbol GPC

GENUINE PARTS CO. $42 (New York symbol GPC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 165.3 million: Market cap: $6.9 billion; WSSF Rating: Average) distributes automotive replacement parts to over 4,800 independent outlets in North America. It also operates 1,100 retail stores under the NAPA banner. Automotive parts supply nearly half of its revenue and earnings. Genuine Parts also distributes industrial replacement parts (30% of revenue), office products (15%) and electrical equipment and supplies (5%). Most of Genuine Parts’ recent growth has come from its industrial and electrical businesses. Many North American plant operators are investing in automated production equipment, which helps cut their operating costs. Expanding sales at these businesses also help cut Genuine Parts reliance on auto parts for growth. In the three months ended March 31, 2008, earnings rose 1.6%, to $123.5 million from $121.6 million a year earlier. Per-share earnings rose 5.6%, to $0.75 from $0.71, on fewer shares outstanding. Sales grew 3.8%, to $2.7 billion from $2.6 billion. Sales at the auto parts division rose 3.5% in the quarter, partly due to acquisitions. However, profit fell 5.4% due to strong price competition plus greater sales of lower-margin items. Demand for auto parts should grow over the next few months, particularly now that the average car in the United States is over eight years old. Genuine Parts should also continue to benefit from the increasing number and complexity of vehicles. The company is also fueling its growth with acquisitions of smaller parts distributors that it can easily absorb. These new businesses will help Genuine Parts expand its 5% share of the highly fragmented auto parts market. Genuine Parts’ strong balance sheet will let it continue to make acquisitions. Its long-term debt of $250 million is less than six months cash flow. It also holds cash of $161.5 million or about $1.00 a share. The stock trades at 13.3 times its likely 2008 earnings of $3.15 a share, and at just 0.6 times its sales of $65 a share. The $1.56 dividend yields 3.7%. Genuine Parts is a buy.