Graco's Steady Compounder Narrative Faces Earnings Reality
Graco beat consensus earnings expectations by $0.102 per share, its strongest beat in four quarters, but the stock trades at $76.59—below the $80.01 at which a company insider sold shares in August. T
Graco's $537M Free Cash Flow Masks Uneven EPS Delivery
NEW YORK, September 22 —
Graco Inc. (GGG) printed its strongest earnings beat in four quarters, $0.91 against an consensus, yet shares sit at $76.59, below the price at which the company's own insider sold in August. That gap is the puzzle for investors assigning a steady-compounder multiple of 21.9x forward earnings to a business whose EPS alternates between sharp misses and beats.
- Free cash flow of $537 million trailing twelve months on $2.27 billion revenue; $510 million cash vs. $50 million debt.
- Four quarters alternating miss and beat, from a -10.8% miss at $0.66 to a +12.4% beat at $0.91 most recently.
- 21.9x forward P/E at $76.59; analyst consensus target $91.29; most recent insider sold at $80.01.
The Franchise That Earns the Multiple
Graco's business case is legible on its face. The Minneapolis company, founded in 1926, makes fluid-handling equipment across three segments: Contractor (paint sprayers and coating systems for construction trades), Industrial (pumps and lubrication systems for chemical, food, and petroleum industries), and Expansion Markets (semiconductor pumps, high-pressure oil-and-gas valves, environmental remediation gear). The 52.6% gross margin and $537 million in annual free cash flow on $2.27 billion in revenue reflect equipment economics that are hard to replicate. The net-cash balance sheet, $510 million in cash against $50 million in debt, adds optionality. A 21.9x multiple is the market's acknowledgment of that.
The Earnings Pendulum
The problem with pricing a steady compounder is that delivery must actually be steady. Graco's four most recent quarters read: miss (-1.1%), beat (+0.8%), miss (-10.8%), beat (+12.4%). The amplitude is widening, not narrowing. A -10.8% miss followed by a +12.4% beat is not the cadence of a business printing predictable cash flows; it suggests either cyclical exposure to end markets (construction activity for Contractor, semiconductor capex for Expansion Markets) that consensus keeps mis-modeling, or execution variance the financial quality metrics cannot insulate against. The insider who sold at $80.01 in August, above the current $76.59, added one data point to the asymmetry.
| Ticker | Mkt cap | Fwd P/E | 52-wk |
|---|---|---|---|
| GGG | $12.4B | 21.9x | -9.9% |
| IEX | $16.4B | 23.1x | +39.6% |
| NDSN | $17.5B | 24.2x | +39.8% |
| LECO | $14.1B | 20.6x | +9.3% |
| FELE | $4.2B | 18.4x | +0.2% |
The Number That Settles the Argument
The debate between "fortress compounder" and "lumpy cyclical" will not be settled by balance-sheet data. What closes it is whether next quarter's EPS holds near the most recent $0.91 or regresses toward the $0.66 trough. Institutional holders own 94% of shares, concentrating any sentiment shift quickly. The analyst consensus at $91.29 implies roughly 19% upside from current levels, a gap that presupposes the recent beat marks the start of a higher delivery plateau rather than a mid-oscillation peak. The next earnings release is the checkpoint. Investors can stress-test what the multiple embeds with the DCF calculator. For the latest Graco numbers, run the Graco Inc. deep-dive.
Basis Report is independent research for informational purposes. It is not investment advice and not a recommendation to buy or sell any security.
Frequently Asked Questions
What were Graco's latest earnings results?
Graco reported earnings of $0.91 per share against an $0.808 consensus estimate, a beat of 12.4%, its strongest in four quarters. The company generated $537 million in free cash flow over the trailing twelve months on $2.27 billion in revenue.
Why did Graco stock fall despite the earnings beat?
Graco trades at $76.59, below the $80.01 price where a company insider sold shares in August. The gap reflects investor skepticism about the reliability of Graco's earnings, which have oscillated between a 10.8% miss and a 12.4% beat across recent quarters.
Is Graco really a steady compounder?
The market has priced Graco at 21.9x forward earnings, treating it as a steady compounder. However, its recent earnings pattern, missing by 10.8% then beating by 12.4%, suggests either cyclical exposure to end markets or execution variance that challenges that thesis.
What is Graco's balance sheet strength?
Graco maintains a net-cash balance sheet with $510 million in cash against $50 million in debt. This strong financial position provides optionality and supports its premium valuation multiple.
What is the consensus analyst target for Graco?
The analyst consensus target is $91.29, implying roughly 19% upside from current levels. However, this assumes the recent beat marks the start of a higher earnings plateau rather than a mid-cycle oscillation peak.
Graco Inc. generates $537 million in annual free cash flow while carrying just $50 million in debt — yet shares sit at $76.59, below both the $91.29 analyst consensus price target and the $80.01 at which the company's most recent insider sold in August. Over the last four quarters, Graco's EPS has alternated between sharp misses and strong beats, a pattern difficult to reconcile with the steady-compounder valuation embedded in a 21.9x forward multiple.
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