Why Graco's (GGG) Stock Seems A Sensible Investment Bet?

Adding Graco Inc. (NYSE:GGG) stock to your portfolio at the moment will be a promising investment move.

The company currently sports a Zacks Rank #1 (Strong Buy) and its earnings per share are predicted to grow by 10.3% in the next three to five years.

What’s Driving Graco’s Growth Prospects?

The upsurge in the U.S. manufacturing sector will likely prove beneficial for Graco, as the company generates almost 60% revenues from this domain. Production and new order numbers are shoring up in the United States, on account of tailwinds like lower corporate taxes, increased public spending and rising oil prices. Going forward, expedited investments in factories, new equipment and other capital goods will likely spur demand for Graco’s products.

Graco’s top line has been improving for the past two years, as evident from a 3.3% year-over-year growth in 2016 and 10.9% in 2017. Notably, in first-quarter 2018, the company reported better-than-expected revenues on the back of improved performances across all three segments. Graco expects that sturdier demand from product channels like finishing systems and lubrication will continue to drive its top-line growth in the near future. It anticipates generating mid-to-high digit organic revenue growth in 2018. Per our estimates, Graco’s revenues are predicted to be up 11.7% and 4.8%, for 2018 and 2019, respectively.

Graco intends to strengthen its competency on the back of strategic business acquisitions. For instance, in December 2017, the company successfully acquired Smith Manufacturing in a bid to fortify its line striping and pavement maintenance equipment offerings. The company stated that buyout benefits bolstered its revenues by $11 million in the first quarter of 2018 and would likely augment the same by $40 million for the whole year.

Over the past six months, shares of this Zacks Rank #1 (Strong Buy) company has rallied 4.2%, as against 5.4% loss recorded by the industry.

Moreover, Graco’s gross profit margin has remained fairly steady for the past four quarters. Notably, adjusted earnings in the first quarter of 2018 surpassed the Zacks Consensus Estimate by 17.1% and came in 45.5% higher than the year-ago tally.

Stronger revenues and greater operational efficacy are expected to boost Graco’s bottom line in the near-term quarters. Per our estimates, the company’s earnings will likely be up 32.2% and 8.2%, for 2018 and 2019, respectively.

Additionally, favorable currency exchange rates are estimated to strengthen the company’s top- and bottom-line growth trajectories in the quarters ahead.

Other Stocks to Consider

Applied Industrial Technologies, Inc. (NYSE:AIT) flaunts a Zacks Rank of 1. The company’s earnings per share (EPS) are predicted to be up 12% in the next three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEX Corporation (NYSE:IEX) holds a Zacks Rank #2 (Buy). The EPS is projected to rise 11%, over the next three to five years.

Ingersoll-Rand Plc (NYSE:IR) also carries a Zacks Rank of 2. The EPS will likely be up 11% during the same time frame.

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