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Friedman Billings Cuts Graco to Market Perform

Friedman Billings downgraded Graco (GGG) to market perform from outperform based on the stock's valuation, after the company posted its results for the first quarter.

The company said it had 51 cents vs. 38 cents first quarter earnings per share (EPS) on a 12% sales rise. Analyst Ned Armstrong says the results were substantially better than his estimate of 44 cents EPS and the consensus forecast of 46 cents. He raises his $2.10 2006 EPS estimate to $2.30, and his stock price target from $44 to $50.

Armstrong says his discounted cash-flow-based price target represents a 22 times 2006 p-e multiple, a premium to Graco's peer group average of 19 times, which he believes is justified given the company's peer group leading organic sales growth, margins, and returns on capital.

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