格拉科

Graco's second-quarter adjusted EPS of $0.91 beat the FactSet consensus estimate by $0.10. Sales increased by 3% from the prior-year period, driven by acquisitions, as a 1% organic sales decline was offset by a 1% currency translation tailwind.

Why it matters: Management maintained its 2026 outlook and continues to anticipate full-year organic revenue growth in the low single digits. Graco's organic backlog increased by 28% from the end of 2025 through July 17, which gives us confidence that the company can achieve its full-year targets. Compared with the prior-year period, year-to-date organic orders through July 17 were up by low single digits in contractor and industrial, and up 33% in expansion markets. Last six weeks bookings increased by double digits year over year across all three segments. We were encouraged to hear that the contractor segment returned to positive organic growth in the Americas, in both the home center and professional channels, for the first time in two years.

The bottom line: We've slightly raised our fair value estimate for wide-moat-rated Graco to $85 from $84, mostly due to the time value of money. The stock was up 5% following the earnings release, and we now see the name as fairly valued. Management deployed $315 million into share repurchases in the second quarter, which we consider a good use of capital, as the stock traded at a discount to our fair value estimate throughout most of the quarter. In May, Graco announced the acquisition of Valco Melton for $447 million. The purchase price reflects a multiple of around 14 times adjusted EBITDA, or 10 times after factoring expected synergies, which we consider fair. We think Graco is well positioned to deploy capital into further acquisitions thanks to its strong balance sheet.

BLANK PAGE

We are raising our fair value estimate to $85 per share from $84 following Graco's second-quarter earnings release, mostly driven by the time value of money. Management expects full-year 2026 revenue growth in the low single digits.

We forecast roughly 4.5% average annual organic revenue growth through 2030. We view Graco as a GDP-plus business, with its commitment to R&D and continuous innovation driving sales growth slightly above the average industrial production growth rate through new product introductions, expansion into adjacent markets, and market share gains. In the long run, we project mid-single-digit organic revenue growth. Furthermore, our model incorporates meaningful acquisitions during our five-year explicit forecast term, helping boost total revenue growth to roughly 8.5% annually. Our base-case scenario assumes an average enterprise value/sales multiple of 3 times for acquisitions.

In our base-case scenario, we project operating margins expanding to roughly 30.5% by 2030 (up from 27.3% in 2025), as we think the company can leverage higher volume to drive increased profitability. We assume an 8% weighted average cost of capital and a 21% long-run effective tax rate in our model.

We award Graco a wide economic moat rating primarily due to customer switching costs and secondarily due to intangible assets. Graco is a leading manufacturer of equipment used for managing fluids, and its portfolio includes a wide array of niche products with little direct competition. The firm specializes in moving materials that are abrasive, viscous, or corrosive, which inherently create more wear and tear on pumps and other equipment. Graco’s engineering capabilities, reputation for quality, and experience with handling difficult-to-move liquids are key differentiators that have allowed it to establish a strong competitive position across all the markets it competes in.

Graco has a large installed base of equipment that is protected by customer switching costs. Many of its products perform mission-critical functions and are integrated as part of a customer’s production process. As such, a strong record of reliability is crucial to win business, considering the risk of product failures leading to unplanned outages or wasted material. Furthermore, since Graco’s equipment often accounts for a relatively small portion of a customer’s total production costs (for instance, a paint system at an auto assembly plant), the potential cost of unscheduled downtime could far outweigh any cost savings from switching to a cheaper but less proven alternative.

Graco also benefits from a relatively high level of recurring revenue. The company generates roughly 40% of its sales from aftermarket parts and accessories tied to its installed base. Abrasive fluids create constant wear and tear on equipment, creating a steady demand for replacement parts (for example, spray gun tips). This creates a steady stream of recurring revenue that generates relatively high margins and helps smooth out demand in cyclical end markets. Graco holds high levels of inventory to ensure that replacement parts are readily available and offers same-day shipping on most products, which helps retain customers.

Graco’s wide moat is also protected by intangible assets, including its strong brand name, patent portfolio, and reputation for quality, which allow the company to command premium pricing. Moreover, the firm has established itself as a leader in innovation, spending roughly 4.5% of sales on research and development, nearly 3 times as much as its competitors. Not only does Graco’s continuous investment in innovation fend off competitors, it has allowed the company to gain ground on its rivals. For example, while many peers cut R&D spending during the Great Recession, Graco increased it from $30 million in 2007 to roughly $38 million in 2008 and 2009, which allowed the company to capture market share during the recovery. Given its healthy balance sheet and strong cash flows, Graco has ample liquidity to continue funding its R&D even during an economic downturn, and we believe that its commitment to innovation will make it difficult for rivals to undermine Graco’s competitive position.

A unique aspect of Graco’s business is the breadth of its portfolio. The firm derives roughly half of its revenue from nearly 61,000 different stock-keeping units it sells on average no more than once a day. The high-mix low-volume nature of the business makes the company’s moat difficult to assail, as it would be challenging for a new entrant to replicate Graco’s long-standing customer relationships, distributor network, and wide array of products to establish sufficient scale to compete effectively.

Graco’s wide moat has allowed it to generate lucrative returns on invested capital, which have averaged around 21%, or more than twice its cost of capital, over the last decade. The company operates in niche industries with high barriers to entry, and we believe that its reputation for quality, manufacturing excellence, and continuous innovation will make it challenging for rivals to breach its moat. As such, we believe that Graco’s wide moat will help the firm continue outearning its cost of capital for many years to come.

Graco has a large installed base and leading market share across a wide range of niche products.

Graco has a healthy level of recurring revenue, generating roughly 40% of its sales from aftermarket parts and accessories, which reduces the volatility of its earnings from cyclical end markets.

The company generates strong free cash flows, averaging around 17% of revenue over the past decade.

Organic revenue growth may be elusive if industrial production remains soft.

Because M&A is an important part of the firm’s growth strategy, Graco faces acquisition risk, including the possibility of overpaying and challenges integrating acquired companies.

Considering that Graco’s manufacturing is heavily concentrated in the US, significant cost inflation and persistent strength in the US dollar could put a dent in the firm’s profitability.