| Valuation method | Value, $ | Upside, % |
|---|---|---|
| Artificial intelligence (AI) | 48.03 | -45 |
| Intrinsic value (DCF) | 7.28 | -92 |
| Graham-Dodd Method | 11.29 | -87 |
| Graham Formula | 12.68 | -85 |
Graco Inc. (NYSE: GGG) is a leading global manufacturer of fluid handling systems and equipment, serving diverse industries with precision-engineered solutions for moving, measuring, controlling, dispensing, and spraying fluids and powders. Founded in 1926 and headquartered in Minneapolis, Minnesota, Graco operates through three key segments: Industrial (foam, adhesive, and coating equipment), Process (pumps and valves for chemicals, oil & gas, and food processing), and Contractor (paint and marking sprayers). The company’s products are critical to industries ranging from automotive and construction to oilfield services and manufacturing, distributed via a hybrid model of direct sales, OEM partnerships, and home-center retail channels. With a market cap of ~$14B, Graco is distinguished by its strong R&D focus, recurring revenue from consumables and aftermarket parts, and a reputation for reliability in harsh industrial environments. Its sector-leading margins (23% net income in 2023) reflect pricing power and operational efficiency in the industrial machinery space.
Graco presents a compelling investment case as a high-quality industrial name with consistent profitability (5-year revenue CAGR of 9.3%), robust free cash flow generation (~$515M in 2023), and a debt-light balance sheet (debt-to-equity of just 0.03). The company’s exposure to cyclical end markets (e.g., construction, oil & gas) is mitigated by its sticky aftermarket business (~30% of sales) and global diversification. Risks include potential slowdowns in non-residential construction, input cost inflation (steel, electronics), and competition in contractor-grade sprayers. However, Graco’s 1.09 beta suggests lower volatility than peers, while its 1.5% dividend yield and 12+ years of consecutive payout growth appeal to income investors. Valuation at ~30x P/E appears justified given ROIC of 25%+ and proven recession resilience.
Graco’s competitive advantage stems from three pillars: (1) **Technology leadership** in precision fluid control, exemplified by patents in plural-component dispensing and proprietary pump designs that reduce maintenance costs for clients; (2) **Vertical integration**, with 80% of products manufactured in company-owned facilities (Minnesota, Ohio, China) ensuring quality control and margin retention; and (3) **Distribution moat**, leveraging long-term relationships with industrial distributors like Fastenal and specialized dealers in 100+ countries. In the Industrial segment, Graco dominates high-margin niches like polyurea spray systems (60% market share) where customer switching costs are high due to training and system integration requirements. The Process segment competes on reliability in corrosive environments (e.g., chemical injection pumps with 50,000-hour MTBF ratings), while Contractor tools benefit from brand recognition among professional painters. Key vulnerabilities include limited exposure to digital/IoT-enabled equipment compared to newer entrants and pricing pressure in entry-level sprayers from Asian manufacturers. Graco mitigates these risks through incremental innovation (e.g., its GX electronic sprayer platform) and acquisitions (e.g., 2022 purchase of Alco Valves for high-pressure fluid control).