About: Graco makes systems and equipment used to move, measure, control, dispense and spray fluid and powder materials. Its equipment is used in manufacturing, processing, construction and maintenance industries. Graco specialises in solutions for difficult-to-handle materials with high viscosities, abrasive or corrosive properties, and multiple component materials that require precise ratio controls.

Why it’s in the portfolio: Graco has a high degree of vertical integration in its operations, which is quite unusual for the industry it sits in. It manufactures its own essential components, performing critical machining, assembly and in-house testing for most products. This allows the business to control quality, improve response time and maximise cost effectiveness. This is a contributing factor to achieving gross margins 10% higher than its peers. Deeply ingrained in the Graco organisation is a belief that facts should rule the decision-making processes. Investment decisions of all kinds are evaluated with a rigorous focus on cash return on investment. The business has averaged over 20% return on capital over the last 10 years while delivering 5% organic growth.

Fundamentals: GGG has a market cap of $7b USD, a PE of 26.4x forward earnings, EPS of 1.8x forward earnings and a PEG ratio of around 3.5. The company currently has a 1.3% dividend yield and a 27.5% payout ratio. The company’s debt to assets are currently 18.8% and debt to equity is 36.9%.

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