Fastenal (NASDAQ:FAST): Downgraded to Sell with a $22 tgt at FTn Midwest

From Notacle Calls

FTN Midwest is out with a very neg call on Fastenal (NASDAQ: FAST), downgrading the shares to Sell from Neutral and lowering tgt to $22 from $40.

Firm's 2009 and 2010 EPS estimates assume -6.9% and -1.0% revenue growth, 3.2% and 5.0% store growth and 51.0% and 51.5% GM, respectively, down from 52.8% in 2008. FAST expects to temper store growth and headcount in 2009 which is factored into our OM estimates of
15.9% and 16.2%, respectively, vs. 19.7% for 2008.

FAST reported more negative leverage in the last cycle than FTN is modeling, but with a different cost structure. Also, many companies are better equipped and more experienced to handle cycles than in the past.

While they do not use historic or peer P/E multiples for valuation, FAST has ranged from 18x-41x over the past 10 years. FAST is currently trading at 18.3x current 2009 consensus vs. its distribution peers at 11.1x.

Conclusion:

While they neither believe history will simply repeat nor are modeling their coverage to mirror their respective fundamentals of the past recession, the firm attempts to account for macro change and fundamental impact. Their downgrade of FAST reflects their belief that the market has not yet priced potential negative trends similar to what is estimated and priced into other distributors.

Notablecalls: FAST should get killed on this.

For more calls go to http://notablecalls.blogspot.com/

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