Here's Why Investors Should Retain Graco Stock in Their Portfolio Now

Graco Inc. GGG is benefiting from strength across its Industrial and Expansion Markets segments, improving order rates, product innovations and accretive acquisitions. The company's efforts to reward its shareholders handsomely add to its appeal.

Headquartered in Minneapolis, MN, Graco is engaged in designing, manufacturing and marketing equipment and systems used to measure, move, control, spray and dispense fluid as well as powder materials. The company provides equipment solutions for materials with high viscosities, abrasive or corrosive properties and for multiple component materials.

Shares of this Zacks Rank #3 (Hold) company have gained 6.1% in the past year compared with the industry’s 1.8% growth.

Let’s discuss the factors that are likely to continue benefiting this company.

Business Strength: Graco has been witnessing solid momentum in the Industrial segment, driven by growth in demand for powder finishing and liquid finishing systems product lines. An increase in demand for vehicle services bodes well for the segment. The segment’s sales increased 3% year over year in the first quarter of 2025.

Solid momentum in the environmental business, driven by robust activity in the groundwater testing and gas analyzer categories, is supporting the Expansion Markets segment. Increasing order rate in the semiconductor business is also driving growth for the segment. The segment’s sales increased 12% year over year in the first quarter.

Product Innovation: New product launches and improvement of the existing ones are aiding GGG’s performance. Graco expanded its QUANTM electric double diaphragm (EODD) pump line in April 2025. These new pumps are more energy-efficient, easier to maintain and safer to use, making them a better fit for modern factories. Also, the company launched several products in 2024, including the PowerShot XT electronic-powered airless paint gun, Stellair ACE and Stellair and E-Mix XT. In the first quarter of 2025 and full-year 2024, Graco spent $19.4 million and $87.2 million, respectively, on product development. Improving order rates coupled with product introductions are expected to drive the company’s performance in the near quarters.

Expansion Efforts: GGG believes in expanding its market presence, solidifying its customer base and enhancing product offerings through acquisitions. In the first quarter, acquisitions contributed 6% to the company’s sales. Graco acquired Corob S.p.A. (Corob) in November 2024. The inclusion of Corob’s strong product line, supported by its solid designing and manufacturing capabilities, enabled the company to expand its customer offerings and strengthen its position in the paint and coating machinery manufacturing market. The acquired company has been added to GGG’s Contractor segment. In August 2024, Graco acquired PCT System, which helped strengthen its White Knight business and expand its presence in the semiconductor market.

Rewards to Shareholders: GGG rewards its shareholders handsomely through dividend payments and share buybacks. In the first three months of 2025, the company used $46.6 million to distribute dividends, up 8.7% year over year, and bought back shares worth $238.1 million. Also, in 2024, dividend payments totaled $172.1 million and share repurchases were $31.4 million. The quarterly dividend rate was hiked 7.8% in December 2024.

GGG’s Near-Term Concerns

Segmental Weakness: Graco’s performance is being impacted by softness in the Contractor segment, owing to lower activity in the professional paint channel. Reduced demand in the home center channel, due to weakness in the U.S. housing and remodeling markets, is concerning as well. The segment’s core sales declined 1% year over year in the first quarter of 2025.

High Costs & Expenses: GGG has been dealing with the negative impact of high operating costs and expenses over time. Graco’s cost of sales increased 10.9% year over year in the first quarter. The metric, as a percentage of net sales, rose 150 basis points year over year. Also, the selling, marketing and distribution costs, and general and administrative expenses increased 0.9% and 5.5%, respectively, year over year in the same period.

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This article originally published on Zacks Investment Research (zacks.com).

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