Estimates have been rising for The Fastenal Company ( FAST ) after it reported strong fourth quarter results, driven by a stellar 22% increase in sales.

It is a Zacks #2 Rank (Buy) stock.

Analysts project this strong growth to continue over the next couple of years. Based on consensus estimates, analysts expect 21% EPS growth this year and 19% growth next year.

On top of this, the company pays a dividend that yields a solid 1.4%.

Company Description

Fastenal is a leader in the wholesale distribution of industrial and construction supplies. It operates 2,585 stores primarily in North America.

It is headquartered in Winona, Minnesota and has a market cap of $14.4 billion.

Fourth Quarter Results

Fastenal reported strong fourth quarter results on January 18. Net sales rose 22% year-over-year to $697.8 million, ahead of the Zacks Consensus Estimate of $693 million. Same-store sales (those open more than 2 years) grew an impressive 18%.

The gross profit did contract a bit, however, from 52.0% to 51.2%. But this was more than offset by a decline in operating and administrative expenses, from 33.4% to 31.0% of net sales. Operating income increased 32% year-over-year.

Earnings per share was up 36% over the same period to 30 cents, in-line with the Zacks Consensus Estimate.

Outlook

Although EPS was in-line with expectations, analysts raised their estimates going forward, sending the stock to a Zacks #2 Rank (Buy). Analysts expect the company's strong top-line growth to continue, leading to margin expansion and strong double-digit EPS growth over the next couple of years.

The Zacks Consensus Estimate for 2012 is now $1.46, representing 21% growth over 2011 EPS. The 2013 consensus estimate is currently $1.74, corresponding with 19% growth.

Dividend

In addition to strong growth, Fastenal pays a dividend that yields 1.4%. Going back to 2000, the company has increased its dividend at a compound annual rate of 42%:

It generates strong free cash flow and has no debt, so expect this dividend to continue climbing.

Valuation

Shares of FAST have climbed over 50% since early October. This has led to an increase in valuation multiples as well.

The stock currently trades at 32x forward earnings, a premium to its 10-year median of 27x. Its price to book ratio of 9.7 is also above its historical median of 6.4.

The Bottom Line

Although it might not be a screaming value, the stock could still show strong performance over the next few weeks or months, particularly if economic data in the U.S. continues to improve.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor .

 
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