On the four Ms, Genuine Parts Company earns 48 for management and 24 for moat. The management score rests on a return on invested capital of 9.9% and a gross margin of 34.6% — figures that describe returns closer to the cost of the capital behind them. Debt sits at 1.87x equity. The narrow moat and mixed management are not the same judgement, and the gap between them is where the argument about this business sits.
The price anchors are built on deliberately conservative assumptions. Growth is modelled at 8.0% a year, the rate measured from the filings. The exit multiple assumed is 16.0x. That produces an intrinsic value of $2.05, a 10-CAP price of $64.29 and a payback time price of $73.85, with the value zone set at the highest of the three, $73.85. Today's price of $125.12 is 69% above it.
The price is above the value zone and the business scores 24 for moat and 48 for management. Neither test argues for paying up here.
| Price | $125.12 |
| Market cap | $17.2B |
| P/E ratio | 521.3x |
| Return on invested capital | 9.9% |
| Gross margin | 34.6% |
| Debt to equity | 1.87x |
| Free cash flow yield | 2.5% |
| Growth rate used | 8.0% |
| Growth rate measured | 8.0% |
| Exit multiple assumed | 16.0x |
| Company | Moat | Buy price |
| Magna International Inc (MGA) | 49 | $135.47 |
| Borgwarner Inc (BWA) | 48 | $73.74 |
| Allison Transmission Holding (ALSN) | 67 | $106.60 |
| Aptiv (APTV) | 57 | $54.01 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Genuine Parts Company rather than accepting ours.