FAST Morningstar

Morningstar Equity Analyst Report | Report as of 24 Jul 2015 | Page 1 of 9
Fastenal Co FAST (XNAS)

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
40.40 USD
47.00 USD
0.86
2.62
11.72
Industrial Distribution
Standard
23 Jul 2015
23 Jul 2015
23 Jul 2015
23 Jul 2015
Morningstar Pillars
Analyst
Quantitative
Economic Moat
Valuation
Uncertainty
Financial Health
Wide
QQQQ
Medium
Wide
Undervalued
Medium
Strong
Source: Morningstar Equity Research
Quantitative Valuation
FAST
USA
Undervalued
Fairly Valued
Price/Quant Fair Value

Price/Earnings
Forward P/E
Price/Cash Flow
Price/Free Cash Flow
Dividend Yield %
Overvalued
Current
5-Yr Avg
0.94
23.0
19.7
22.2
33.4
2.62
1.11
33.6
36.0
59.1
1.65
Sector Country
0.87
19.0
14.8
11.1
18.7
2.07
0.83
20.6
15.3
12.7
20.0
2.17
Source: Morningstar
Bulls Say
OFastenal estimates that it has 2% of a $160
billion MRO market and has many more years of
growth ahead of it.
OThe companys push into private-label products
should expand gross margins. Private-label
products are currently 10% of sales, but they offer
gross margins 30% higher than the company
average.
OLonger term, we believe vending machines will
further entrench Fastenal with its customers.
Bears Say
OFastenal has historically cited that the North
American market can support at least 3,500 stores.
With 2,700 stores today, Fastenal is close to
saturating its North American market
opportunity.
OThe companys push into nonfastener products
is taking it away from its highest-margin and
deepest moat segments.
OAmazon's attempts to displace incumbent
distributors like Fastenal could eat into Fastenals
market share over the long term.
Fastenal's sales culture shows that it can grow without opening new
stores.
Kwame Webb, CFA, Analyst, 24 July 2015
Analyst Note
Investment Thesis
We are maintaining our $47 fair value estimate and wide

moat rating for Fastenal following the firm's
second-quarter earnings release. Macroeconomic
headwinds intensified in the period, as revenue grew only
5% year over year, compared with 9% in the first quarter.
Fastener sales growth was flat compared with the prior
year as new customer additions were more than offset by
sales declines at predominantly export-based heavy
manufacturing customers. Nonfastener sales grew 9% to
make up 60% of sales, due to materially less exposure to
the heavy manufacturing end market.
Fastenal competes in the highly fragmented $5 trillion

industrial distribution industry. It is the nation's
seventh-largest industrial distributor, with $3.7 billion of
revenue largely focused on the $160 billion maintenance,
repair, and operations market. This company and its
competitors serve a crucial role for manufacturing
customers, which often do not have the scale to evaluate
and select from the more than 1 million products
(1,448,000 stock-keeping units) from thousands of
vendors. Similarly, Fastenal's suppliers do not have
salesforces that can handle end users' irregular and
infrequent product requests.
Over the past decade, Fastenal has increased sales and
operating income at 9% and 12% respective compound
annual rates. This growth came from a climbing number
of SKUs and an extensive local branch network. Although
high SKUs reduce inventory turns, having a wide array of
products allows Fastenal to achieve high margins on
slower-moving inventory. The 2,700-store network also
allows the firm to provide a high service level to customers
who can easily visit a Fastenal store rather than wait for
the product to be delivered. Grainger, with 700 stores, is
the only competitor with a comparable store network.
Fastenals high degree of customer service has extended
a halo effect to its brand, and the company has spent the
past few years enhancing margins via private-label
product introductions. Although Fastenal has not
disclosed the average margin differential, many of its
competitors have said that private-label products carry
gross margins 20%-40% above non-private-label
products and offer a significant earnings growth
opportunity over the next decade.
We believe Fastenals U.S. store network with 2,300 U.S.
stores is reaching critical mass and increases in
same-store sales will become more important to growth,
as new store growth will be 0%-1% per year. In 2014,
same-store sales grew 14% on 13% average store
employee growth. We believe the recent move to increase
the number of employees in existing stores will allow
Fastenal to achieve its sales growth targets.
Kwame Webb, CFA, Analyst, 14 July 2015
Company gross margin declined 50 basis points year over

year to 50.3%, reflecting the ongoing mix shift toward
larger customers and poor timing of vendor rebates.
Despite slowing revenue growth and gross margin
pressure, the company is tirelessly capturing efficiency in
its stores and support facilities. The operating margin
improved 80 basis points to 22.6% as the company
increased sales with relatively few back-office head count
additions. Incremental operating margin was 40% during
the period. Management seemed confident that it would
continue to generate accretive incremental operating
margins on revenue growth through the balance of the
year.
Year-to-date free cash flow grew 38% to $173 million on
a modest decline in capital expenditures and reduced
incremental working capital needs. Most free cash flow
has gone to dividend payments as the company has done
$165 million of dividend payments year to date and seems
likely to maintain a 60% payout ratio. Reflecting
confidence in longer-term growth and opportunism in the
recently discounted stock price, the company
predominantly borrowed cash to repurchase 4 million
shares at $42.14 each, in addition to buying 2 million
shares in the first quarter at $40.93 each. This is a radical
change in capital allocation relative to prior managers, but
a move we embrace as the shares remain inexpensive
relative to our fair value estimate.
Economic Moat
Kwame Webb, Analyst, 24 July 2015
We believe Fastenal has a wide moat stemming from

network effects and a cost advantage over smaller
2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 2 of 9

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
40.40 USD
47.00 USD
0.86
2.62
11.72
Standard
23 Jul 2015
23 Jul 2015
23 Jul 2015
23 Jul 2015
Close Competitors
Currency (Mil)
Market Cap
TTM Sales
Operating Margin
TTM/PE
W W Grainger Inc GWW
USD
15,136
10,019
13.41
19.53
HD Supply Holdings Inc HDS
USD
6,852
9,009
7.43
28.01
MSC Industrial Direct Co Inc MSM
USD
4,308
2,910
13.19
18.32
Wesco International Inc WCC
USD
2,755
7,895
5.83
12.18
competitors. These factors have allowed Fastenal to

produce a 21% average return on invested capital over
the past five years. Over the next five years, we believe
better scale and higher margins will generate a 23%
average ROIC.
three years, private-label sales have grown to 10% from

6% of total sales and a 20%-40% improvement in gross
margins (depending on the product). Lastly, Fastenal
significantly insourced its domestic supply chain to create
a cost advantage. Management believes its distribution
center automation and insourcing most truck
transportation has provided 100 basis points of gross
margin expansion in the past five years. Approximately
95% of Fastenals trucking needs are insourced, which is
far greater than any other major peer.
Valuation
An industrial distributor builds a network effect by being
ubiquitous in its customers and suppliers sales and
procurement. We believe there are several strategies a
distributor can pursue: supply chain services,
value-additive information, and multichannel distribution
(phone, store, and online sales). We believe Fastenal has
done an excellent job in most of these categories.
Fastenals first strategy is to become a key link between
3,000 suppliers and 400,000 customers. For example,
Fastenal ships most orders in less than 24 hours, and 80%
of deliveries occur before 8 a.m. Additionally, Fastenal
provides vendor-managed inventory where it systematically
monitors a customers nuts, bolts, and supplies
consumption and refills supply cabinets before stock runs
out. The second strategy revolves around Fastenals
extensive fastener knowledge base. If a nut or bolt
becomes detached from a machine, Fastenals personnel
are not only trained to provide a replacement based on its
size, they can discuss the replacement fasteners strength,
alloy composition, fastener coatings for the application,
and whether it meets certain industry or regulatory
requirements. The products manufacturer does not have
the time or resources to cost-effectively provide this
information to a dispersed and inconsistent customer
base. Lastly, Fastenal has 2,300 stores in the U.S., which
makes it convenient for customers to easily purchase
products and access salesperson expertise.
We believe a distributors cost advantages have four
sources: volume rebates, direct product sourcing,
private-label products, and an efficient logistics supply
chain. As the largest fastener distributor, Fastenal has
historically garnered volume-based rebates from
suppliers. For the past several years, Fastenal has also
increased its direct sourcing from non-U.S. manufacturers
and wholesalers, constantly looking for component
manufacturers that offer the best value. Over the past
Our fair value estimate is $47 per share, which represents

26 times and 23 times our 2015 and 2016 earnings per
share projections, respectively. On an enterprise
value/EBITDA basis, our fair value estimate represents
14.9 times and 13.0 times 2015 and 2016 EBITDA,
respectively.
Under our base case, we believe Fastenals revenue will
grow at a 12% average annual rate over the next five
years. Our growth estimate is based on a 1% net annual
increase in stores and an 11% annual increase in
same-store sales growth. Although at first glance this
appears to be an aggressive growth figure, we highlight
that between 2010 and 2012, same-store sales growth
was 12%-17% before decelerating to 3% in 2013. We
expect a sales acceleration because Fastenal is expanding
the store-based salesforce 15% in 2015 relative to the 2%
average store-based salesforce growth in 2013. We would
also highlight that the business model is also increasing
its large store count and emphasizing national accounts
which is increasing average order size.
Higher sales growth should expand operating margins
approximately 50-70 basis points per year over the next
five years, relative to the last decades median 60 basis
points of annual operating margin expansion. We use a
three-stage discounted cash flow model to value
Fastenals shares. Over the next five years, we expect free
cash flow to equityholders to grow at an 17% average
annual rate to $2.28 per share.
Risk
We view Fastenal as having medium uncertainty. The

companys industrial end market is broad and provides
exposure to the general industrial economy. Changes in

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
40.40 USD
47.00 USD
0.86
2.62
11.72
Standard
23 Jul 2015
23 Jul 2015
23 Jul 2015
23 Jul 2015
industrial production would vary our forecast.

Additionally, 20%-25% of sales go into nonresidential
construction, so any changes in this market outlook or
construction loan financing would also affect results. The
company has no debt, and we do not expect financial
leverage to exacerbate any operational shortcomings.
Management
We assign Fastenal a Standard stewardship rating. The

company has been responsible in paying out
approximately 55% of net income as dividends, and
director compensation is low. Despite these positives, the
company does not have minimum stock ownership
requirements for directors nor does it pay them in
equity-based compensation. This is a modest negative
and does not forcefully align incentives between the board
and the shareholders they represent.
Management compensation is reasonable, and we like
the minimum 5% annual earnings growth threshold for
management incentives. That said, we would likely
emphasize these targets on a per-share basis.
Additionally, we would like to see less senior-level
compensation tied to quarterly goals and more emphasis
on annual or multiyear goals. These quarterly incentives
make sense for motivating a salesforce that can have high
turnover early in their careers, but they do not seem
appropriate for senior managers whom we would like to
see focused on bigger-picture issues and longer-term
returns for Fastenal.
In a surprise move, on July 20, Fasetnal's board announced
that Will Oberton (Fastenal's CEO between December
2002 and December 2014) would resume the CEO post.
Oberton's return should be a welcome announcement as
he increased revenue and operating income at 13% and
18% compound annual rates during his tenure. Lee Hein
has resigned his CEO post and is resuming the COO role
that he previously held. CFO Dan Florness supports
Oberton and Hein and has been in his current role for 18
years. Whereas we originally expected Lee Hein to
assume the CEO position for several years we suspect
that he is no longer on the list as potential future CEOs
and we would expect the company to provide further
updates on succession planning in the coming months.

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
40.40 USD
47.00 USD
0.86
2.62
11.72
Standard
23 Jul 2015
23 Jul 2015
23 Jul 2015
23 Jul 2015
Kristoffer Inton, Analyst, 05 May 2015
Analyst Notes Archive

Fastenal's Impressive Incremental Margin Expansion
More Than Offsets Revenue Headwinds
We are maintaining our $47 fair value estimate and wide

moat rating for Fastenal following the firm's
second-quarter earnings release. Macroeconomic
headwinds intensified in the period, as revenue grew only
5% year over year, compared with 9% in the first quarter.
Fastener sales growth was flat compared with the prior
year as new customer additions were more than offset by
sales declines at predominantly export-based heavy
manufacturing customers. Nonfastener sales grew 9% to
make up 60% of sales, due to materially less exposure to
the heavy manufacturing end market.
Company gross margin declined 50 basis points year over
year to 50.3%, reflecting the ongoing mix shift toward
larger customers and poor timing of vendor rebates.
Despite slowing revenue growth and gross margin
pressure, the company is tirelessly capturing efficiency in
its stores and support facilities. The operating margin
improved 80 basis points to 22.6% as the company
increased sales with relatively few back-office head count
additions. Incremental operating margin was 40% during
the period. Management seemed confident that it would
continue to generate accretive incremental operating
margins on revenue growth through the balance of the
year.
Year-to-date free cash flow grew 38% to $173 million on
a modest decline in capital expenditures and reduced
incremental working capital needs. Most free cash flow
has gone to dividend payments as the company has done
$165 million of dividend payments year to date and seems
likely to maintain a 60% payout ratio. Reflecting
confidence in longer-term growth and opportunism in the
recently discounted stock price, the company
predominantly borrowed cash to repurchase 4 million
shares at $42.14 each, in addition to buying 2 million
shares in the first quarter at $40.93 each. This is a radical
change in capital allocation relative to prior managers,
but a move we embrace as the shares remain inexpensive
relative to our fair value estimate.
Efficiency Gains in Key Sectors Portend a Muted
Long-Term Outlook for Nonresidential Construction
The U.S. nonresidential construction recovery has been

slow and uneven. While growth is likely to accelerate in
the near term as pent-up demand is unleashed in certain
sectors, we see construction spending trailing GDP growth
in subsequent years, mainly due to a secularly diminished
need for new construction in many key sectors.
We forecast 4% average annual nominal growth over the
next decade. This outlook contrasts sharply with a
consensus that foresees high-single-digit to low-double-digit
nominal growth for nonresidential over the next several
years, as the construction share of GDP fully recovers to
pre-financial crisis norms.
Our bearish outlook might seem negative for the economy
overall, but it isnt. Efficiency gainsthe ability to do more
with a smaller construction footprintare the key reason
we expect nonresidential constructions GDP share to dip.
While "doing more with less" may weigh on construction's
direct contribution to growth, rising productivity and
capital efficiency will be a net positive for the economy
as a whole.
Our outlook varies considerably among the 16 construction
sectors due to diverse cyclical and secular drivers.
Although total construction spending is likely to
disappoint, companies that serve higher-growth sectors
areas such as manufacturing and highway and street,
should find profit expansion easier to come by.
Aggregates, cement, and steel are likely to be relative
winners.
Fastenal Conquers Macroeconomic Revenue
Headwinds With Solid Expense and Productivity
Management
Kwame Webb, Analyst, 14 April 2015
We are increasing Fastenals fair value estimate to $47

from $45 per share. The change reflects a $4 benefit from
Morningstars recent 1% reduction in cost of equity
assumptions offset by a $2 reduction stemming from a
lower growth outlook in 2015. Near-term macroeconomic
headwinds revolving around weakened export opportunities
for U.S. based manufacturers and weak oil and gas capital
spending all weighed on the quarter, pushing
year-over-year sales growth from 17% in December to 6%
in March. Although weather weighed on the quarters
sales, management viewed macroeconomic pressures as
the greater headwind. The recent slowdown in sales has

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
40.40 USD
47.00 USD
0.86
2.62
11.72
Standard
23 Jul 2015
23 Jul 2015
23 Jul 2015
23 Jul 2015
no impact on Fastenals competitive advantage, and we

are reiterating our wide moat rating.
Year over year, first-quarter sales grew 9% to $953 million.
Operating margins expanded 90 basis points to 21.3% as
workforce additions in 2014 continue to mature and
translate into productivity gains in operations and sales.
Additionally, the recent slowdown in new store additions
means that the mix of profits from more mature and higher
average operating margin stores is positively contributing
to results. Incremental operating margins were 32.2% in
the period.
Year-to-date free cash flow increased 23% to $136 million
as the company constrained inventory growth in the period
in response to slowing demand. Fastenals approach to
free cash flow deployment appears to be evolving as the
company fully exercised a recently announced 2 million
share repurchase authorization, spending $82 million in
the period. Fastenals board has since increased that
authorization to 4 million shares. This is a noteworthy
change from the past where Fastenal largely has not been
an aggressive or opportunistic buyer of its stock.
Management plans to expand Fastenals credit line to
finance additional repurchases. An additional $82 million
was returned to shareholders via a $0.28 per share
quarterly dividend.
Page
Page
6 of1 9of 1
Quantitative Equity Report | Release Date: 24 July 2015 | Reporting Currency: USD | Trading Currency: USD
Fastenal Co FAST
Last Close
Quantitative Fair Value Estimate
Market Cap (Mil)
Sector
Industry
Country of Domicile
40.40
43.05
11,722.7
p Industrials
USA United States
Fastenal Co is engaged in the wholesale distribution of

industrial and construction supplies in North America. The
Company offersbolts, nuts, screws, studs, and related
washers; and miscellaneous supplies and hardware.
Price Versus Quantitative Fair Value

2011
2012
2013
2014
2015
2016
Sales/Share
Forecast Range
Forcasted Price
Dividend
Split
Quantitative Fair Value Estimate

60
Total Return
Quantitative Scores
48
Scores
Momentum:
Negative
Standard Deviation: 21.36
All Rel Sector Rel Country
Quantitative Moat
Wide
100
Valuation
Undervalued 28
Quantitative Uncertainty Medium
99
Financial Health
Strong
89
100
30
99
85
36
100
26
97
89
24
39.46
52-Wk
48.43
22.32
5-Yr
55.05
12
FAST
USA
Undervalued
Fairly Valued
Overvalued
Valuation
Sector
Median
Country
Median
1.11
33.6
36.0
59.1
1.65
7.7
4.2
0.87
19.0
14.8
11.1
18.7
2.07
1.8
0.9
0.83
20.6
15.3
12.7
20.0
2.17
2.5
1.9
Current 5-Yr Avg
Sector
Median
Country
Median
10.9
4.5
433.9
12.3
5.0
301.2
Current 5-Yr Avg
Price/Quant Fair Value

Price/Earnings
Forward P/E
Price/Cash Flow
Price/Free Cash Flow
Dividend Yield %
Price/Book
Price/Sales
0.94
23.0
19.7
22.2
33.4
2.62
6.6
3.1
Profitability
Return on Equity %
Return on Assets %
Revenue/Employee (K)
28.6
21.8
209.5
25.8
22.2
191.1
Score
100
Quantitative Moat
80
60
40
20
0
2008
2009
2010
2011
2012
2013
2014
Financial Health
Current 5-Yr Avg
Distance to Default
Solvency Score
Assets/Equity
Long-Term Debt/Equity
0.8
128.7
1.2
0.8
1.2
2015
Sector
Median
Country
Median
0.6
489.7
1.8
0.2
0.6
556.8
1.7
0.3
Growth Per Share

Revenue %
Operating Income %
Earnings %
Dividends %
Book Value %
Stock Total Return %
1-Year
3-Year
5-Year
10-Year
12.3
10.5
10.3
25.0
8.4
-7.6
10.5
11.1
11.2
15.4
9.4
-0.3
14.1
21.6
21.8
22.7
9.9
12.8
11.7
14.3
14.5
25.9
11.1
11.4
47.8
46.2
1.49
38.5
4.9
9.8
-6.5
1.59
33.0
4.4
3.6
-29.6
1.68
31.5
4.3
2.2
-10.6
2.10
29.8
3.9
-13.9
-17.4
2.62
23.0
3.1
Total Return %
+/ Market (Morningstar US Index)
Dividend Yield %
Price/Earnings
Price/Revenue
Undervalued
Fairly Valued
Overvalued
Monthly Volume (Thousand Shares)

Liquidity: High
7,251
Financials (Fiscal Year in Mil)

Revenue
% Change
2010
2011
2012
2013
2014
TTM
2,269
17.6
2,767
21.9
3,134
13.3
3,326
6.1
3,734
12.2
3,858
3.3
430
45.3
265
575
33.7
358
674
17.2
421
713
5.8
449
788
10.5
494
831
5.6
520
Operating Income
% Change
Net Income
240
-74
167
7.4
268
-120
148
5.4
396
-138
258
8.2
416
-207
210
6.3
499
-189
310
8.3
538
-180
358
9.3
Operating Cash Flow

Capital Spending
Free Cash Flow
% Sales
0.90
45.2
0.57
1.21
34.4
0.49
1.42
17.4
0.87
1.51
6.3
0.76
1.66
9.9
0.77
1.76
5.9
1.13
EPS
% Change
Free Cash Flow/Share
0.41
4.35
295,259
0.65
4.77
296,564
0.74
5.26
296,754
0.80
5.90
295,868
1.00
6.43
290,165
1.06
6.34
290,165
21.5
19.0
11.7
1.62
1.1
26.1
22.7
12.9
1.75
1.2
27.9
24.0
13.4
1.79
1.2
26.9
23.1
13.5
1.71
1.2
26.8
22.3
13.2
1.68
1.2
28.6
21.8
13.5
1.62
1.4
Profitability
Return on Equity %
Return on Assets %
Net Margin %
Asset Turnover
Financial Leverage
51.8
18.9
51.8
20.8
51.5
21.5
51.7
21.4
50.8
21.1
50.6
21.6
Gross Margin %
Operating Margin %
Long-Term Debt
1,283
6.5
1,459
6.9
1,560
6.6
1,773
5.7
1,915
5.3
1,764
5.1
Quarterly Revenue & EPS

Revenue (Mil)
Mar
2015
953.3
2014
876.5
2013
806.3
2012
768.9
Earnings Per Share
2015
0.43
2014
0.38
2013
0.37
2012
0.34
Dividends/Share
Book Value/Share
Shares Outstanding (K)
Total Equity
Fixed Asset Turns
Revenue Growth Year On Year %

Jun
997.8
949.9
847.6
804.9
Sep
980.8
858.4
802.6
Dec
926.3
813.8
757.2
Total
3,733.5
3,326.1
3,133.6
14.3
13.8
12.1
7.0
7.5
8.7
8.8
5.3
0.48
0.44
0.41
0.38
0.45
0.40
0.37
0.40
0.33
0.33
1.66
1.51
1.42
2013
5.0
2014
2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information
contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution
is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
2015
Morningstar
Morningstar Equity
Equity Analyst
Analyst Report
Report |Page 7 of 9
Morningstar Equity Research Methodology

Fundamental Analysis
At Morningstar, we believe buying shares of superior
businesses at a discount and allowing them to compound over time is the surest way to create wealth in
the stock market. The long-term fundamentals of businesses, such as cash flow, competition, economic cycles, and stewardship, are our primary focus. Occasionally, this approach causes our recommendations to
appear out of step with the market, but willingness to
be contrarian is an important source of outperformance and a benefit of Morningstars independence.
Our analysts conduct primary research to inform our
views on each firms moat, fair value and uncertainty.
Fundamental Economic
Fair Value
Moat Rating Estimate
Analysis
Uncertainty
Assessment
QQQQQ
QQQQ
QQQ
QQ
Q
Star
Rating
Economic Moat
The economic moat concept is a cornerstone of Morningstars investment philosophy and is used to distinguish high-quality companies with sustainable competitive advantages. An economic moat is a structural
feature that allows a firm to sustain excess returns
over a long period of time. Without a moat, a companys profits are more susceptible to competition. Companies with narrow moats are likely to achieve normalized excess returns beyond 10 years while wide-moat
companies are likely to sustain excess returns beyond
20 years. The longer a firm generates economic profits,
the higher its intrinsic value. We believe lower-quality
no-moat companies will see their returns gravitate to-
ward the firms cost of capital more quickly than companies with moats will. We have identified five sources of
economic moats: intangible assets, switching costs,
network effect, cost advantage, and efficient scale.
Fair Value Estimate

Our analyst-driven fair value estimate is based primarily on Morningstars proprietary three-stage discounted
cash flow model. We also use a variety of supplementary fundamental methods to triangulate a companys
worth, such as sum-of-the-parts, multiples, and yields,
among others. Were looking well beyond next quarter
to determine the cash-generating ability of a companys
assets because we believe the market price of a security will migrate toward the firms intrinsic value over
time. Economic moats are not only an important sorting
mechanism for quality in our framework, but the designation also directly contributes to our estimate of a
companys intrinsic value through sustained excess returns on invested capital.
Uncertainty Rating
The Morningstar Uncertainty Rating demonstrates our
assessment of a firms cash flow predictability, or valuation risk. From this rating, we determine appropriate
margins of safety: The higher the uncertainty, the wider
the margin of safety around our fair value estimate before our recommendations are triggered. Our uncertainty ratings are low, medium, high, very high, and extreme. With each uncertainty rating is a corresponding
set of price/fair value ratios that drive our recommendations: Lower price/fair value ratios (<1.0) lead to positive recommendations, while higher price/fair value
Economic Moat
C O M PE T I T I V E F O R C E S
WIDE
Moat Sources:
Intangible
Assets
NARROW
NONE
Switching
Costs
COMPANY PROFITABILITY
Network
Effect
Cost
Advantage
Efficient
Scale
Morningstar
Morningstar Equity
Equity Analyst
Analyst Report
Report |Page 8 of 9
Morningstar Equity Research Methodology

ratios (>1.0) lead to negative recommendations. In very
rare cases, the fair value estimate for a firm is so unpredictable that a margin of safety cannot be properly
estimated. For these firms, we use a rating of extreme.
Very high and extreme uncertainty companies tend to
have higher risk and volatility.
Quantitatively Driven Valuations

To complement our analysts work, we produce Quantitative Ratings for a much larger universe of companies.
These ratings are generated by statistical models that
are meant to divine the relationships between Morningstars analyst-driven ratings and key financial data
points. Consequently, our quantitative ratings are directly analogous to our analyst-driven ratings.
Quantitative Fair Value Estimate (QFVE): The QFVE is
analogous to Morningstars fair value estimate for
stocks. It represents the per-share value of the equity
of a company. The QFVE is displayed in the same currency as the companys last close price.
Valuation: The valuation is based on the ratio of a companys quantitative fair value estimate to its last close price.
Understanding Differences Between Analyst

and Quantitative Valuations
If our analyst-driven ratings did not sometimes differ
from our quantitative ratings, there would be little value in producing both. Differences occur because our
quantitative ratings are essentially a highly sophisticated analysis of the analyst-driven ratings of comparable companies. If a company is unique and has few
comparable companies, the quantitative model will
have more trouble assigning correct ratings, while an
analyst will have an easier time recognizing the true
characteristics of the company. On the other hand, the
quantitative models incorporate new data efficiently
and consistently. Empirically, we find quantitative ratings and analyst-driven ratings to be equally powerful
predictors of future performance. When the analystdriven rating and the quantitative rating agree, we find
the ratings to be much more predictive than when they
differ. In this way, they provide an excellent second
opinion for each other. When the ratings differ, it may
be wise to follow the analysts rating for a truly unique
company with its own special situation, and follow the
quantitative rating when a company has several reasonable comparable companies and relevant information is flowing at a rapid pace.
Quantitative Uncertainty: This rating describes our level of uncertainty about the accuracy of our quantitative
fair value estimate. In this way it is analogous to Morningstars fair value uncertainty ratings.
Quantitative Economic Moat: The quantitative moat
rating is analogous to Morningstars analyst-driven
economic moat rating in that both are meant to describe the strength of a firms competitive position.
Uncertainty Rating
Price/Fair Value
2.00
Q
1.75
175%
1.50
1.25
1.00
0.75
155%
125%
95%
QQ
135%
105%
80%
125%
115%
110%
QQQ
90%
85%
80%
70%
60%
0.50
50%
QQQQ
QQQQQ
0.25
Low
Uncertainty Rating
Medium
High
Very High

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
40.40 USD
47.00 USD
0.86
2.62
11.72
Standard
23 Jul 2015
23 Jul 2015
23 Jul 2015
23 Jul 2015
Unless stated otherwise, this report was prepared by

the person(s) noted in their capacity as Equity Analysts
employed by Morningstar, Inc., or one of its affiliates.
It has not been made available to the issuer prior to
publication.
The Morningstar Rating for stocks identifies stocks
trading at a discount or premium to their intrinsic value.
Five-star stocks sell for the biggest risk-adjusted
discount whereas one-star stocks trade at premiums to
their intrinsic value. Based on a fundamentally focused
methodology and a robust, standardized set of
procedures and core valuation tools used by
Morningstar's Equity Analysts, four key components
drive the Morningstar Rating: 1. Assessment of the
firm's economic moat, 2. Estimate of the stock's fair
value, 3. Uncertainty around that fair value estimate
and 4. Current market price. Further information on
Morningstar's methodology is available from
http://global.morningstar.com/equitydisclosures.
This Research Report is current as of the date on the
report until it is replaced, updated or withdrawn. This
report may be withdrawn or changed at any time as
other information becomes available to us. This report
will be updated if events affecting the report materially
change.
Morningstar does not receive commissions for

providing research and does not charge companies to
be rated.
-Equity Analysts use publicly available information.
-Morningstar may provide the product issuer or its
related entities with services or products for a fee and
on an arms length basis including software products
and licenses, research and consulting services, data
services, licenses to republish our ratings and research
in their promotional material, event sponsorship and
website advertising.
Conflicts of Interest:
-No material interests are held by Morningstar or the
Equity Analyst in the financial products that are the
subject of the research reports or the product.
-Further information on Morningstar's conflict of

interest policies is available from http://global.mornin
gstar.com/equitydisclosures.
-Equity Analysts are required to comply with the CFA

Institute's Code of Ethics and Standards of Professional
Conduct.
If you wish to obtain further information regarding

previous research reports and recommendations and
our services, please contact your local Morningstar
office.
-Equity Analysts' compensation is derived from

Morningstar's overall earning and consists of salary,
bonus and in some cases restricted stock.
Unless otherwise provided in a separate agreement,

you may use this report only in the country in which its
distributor is based.
-Equity Analysts do not influence Morningstar's

investment management group's business arrangements
nor allow employees from the investment management
group to participate or influence the analysis or opinion
prepared by them. Morningstar will not receive any
direct benefit from the publication of this report.
Unless stated otherwise, the original distributor of this

document is Morningstar Inc. The information
contained herein is not represented or warranted to be
accurate, correct, complete, or timely. This report is for
information purposes only, and should not be
considered a solicitation to buy or sell any security.
Redistribution is prohibited without permission.

For Recipients in Hong Kong: The research is prepared
and issued by Morningstar Investment Management
Asia Limited, which is regulated by the Hong Kong
Securities and Futures Commission to provide
investment research, non-discretionary investment
consulting services, and discretionary investment
management services to professional investors only.
Neither Morningstar Investment Management Asia
Limited, nor its representatives, are acting or will be
deemed to be acting as an investment manager or
advisor to any recipients of this information unless
expressly agreed to by Morningstar Investment
Management Asia Limited. For enquiries regarding this
information, please contact a Morningstar Investment
Management Asia Limited Licensed Representative at
http://global.morningstar.com/equitydisclosures.
For Recipients in India: Research on securities as
defined in clause (h) of section 2 of the Securities
Contracts (Regulation) Act, 1956 (Investment
Research) is prepared by Morningstar Investment
Adviser India Private Limited, which is registered with
the Securities and Exchange Board of India. Investment
Research is intended for educational purposes only; it
is not intended to be an offer, solicitation, or
call-to-action for the purchase or sale of a security. You
should seek the advice of a financial professional
before making an investment decision to ensure, among
other things, that the security is suitable based on your
particular needs and circumstances.
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.

FAST Morningstar

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

FAST Morningstar

Încărcat de

Drepturi de autor:

Formate disponibile

Morningstar Equity Analyst Report | Report as of 24 Jul 2015 | Page 1 of 9

Fastenal Co FAST (XNAS)

Fair Value Estimate

Market Cap (Bil)

Source: Morningstar Equity Research

Price/Quant Fair Value

We are maintaining our $47 fair value estimate and wide

Fastenal competes in the highly fragmented $5 trillion

Company gross margin declined 50 basis points year over

We believe Fastenal has a wide moat stemming from

Morningstar Equity Analyst Report |Page 2 of 9

Fastenal Co FAST (XNAS)

Fair Value Estimate

Market Cap (Bil)

W W Grainger Inc GWW

HD Supply Holdings Inc HDS

MSC Industrial Direct Co Inc MSM

Wesco International Inc WCC

competitors. These factors have allowed Fastenal to

three years, private-label sales have grown to 10% from

Kwame Webb, Analyst, 14 July 2015

Our fair value estimate is $47 per share, which represents

We view Fastenal as having medium uncertainty. The

Morningstar Equity Analyst Report |Page 3 of 9

Fastenal Co FAST (XNAS)

Fair Value Estimate

Market Cap (Bil)

industrial production would vary our forecast.

We assign Fastenal a Standard stewardship rating. The

Morningstar Equity Analyst Report |Page 4 of 9

Fastenal Co FAST (XNAS)

Fair Value Estimate

Market Cap (Bil)

Kristoffer Inton, Analyst, 05 May 2015

Analyst Notes Archive

We are maintaining our $47 fair value estimate and wide

The U.S. nonresidential construction recovery has been

We are increasing Fastenals fair value estimate to $47

Morningstar Equity Analyst Report |Page 5 of 9

Fastenal Co FAST (XNAS)

Fair Value Estimate

Market Cap (Bil)

no impact on Fastenals competitive advantage, and we

Quantitative Fair Value Estimate

Market Cap (Mil)

USA United States

Fastenal Co is engaged in the wholesale distribution of

Price Versus Quantitative Fair Value

Quantitative Fair Value Estimate

All Rel Sector Rel Country

Current 5-Yr Avg

Current 5-Yr Avg

Price/Quant Fair Value

Growth Per Share

Monthly Volume (Thousand Shares)

Financials (Fiscal Year in Mil)

Operating Cash Flow

Quarterly Revenue & EPS

Revenue Growth Year On Year %

Morningstar Equity Research Methodology

Fair Value Estimate

Morningstar Equity Research Methodology

Quantitatively Driven Valuations

Understanding Differences Between Analyst