William Blair & Company Analyst Nick Heymann is currently recommending Graco Inc. (GGG). He says the company is presently achieving mid-single-digit organic growth.
“The company has gone through some adjustments related to oil and gas, which only accounts for about 3% to 4% of their sales. However, it does have a fairly significant impact from foreign currency exchange, and there has been slower demand for its products in some of its international markets, such as China, where the industrial economy has slowed,” Heymann says. “However, Graco is investing aggressively to expand its penetration in emerging markets, which is still only about 10% to 20% of its penetration levels here in North America. It’s also expanding its market share and penetration in developed overseas markets such as Europe and Japan.”
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Once a competitor starts using Graco’s products, they help improve productivity and lower costs so much that virtually any competitor must begin to utilize Graco’s products in order to remain cost competitive. Heymann says this tends to result in rapid increases in adoption rates of Graco’s fluid management products.
“After five or six quarters of significantly expanded market development expenditures, the company now appears to be on the cusp of expanding adoption and penetration in overseas developed and emerging markets. All this should spark stronger organic growth,” Heymann says. “So instead of 5% organic growth Graco achieved this last quarter, which was one of the highest in our space, it could soon move up to nearer upper-single-digit organic over the next few quarters.”
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