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MSC Industrial (MSM) Stock Up 20% in 6 Months: Here's Why

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Shares of MSC Industrial Direct Company, Inc. (MSM - Free Report) have gained 19.8% in the past six months, faring better than the industry, which witnessed 2.6% growth. The Industrial Products sector and the S&P 500 composite have gained 3.6% and 10.7%, respectively, in the same time frame.

MSM has a market capitalization of $5.6 billion. The average volume of shares traded in the last three months was 415.8K.

MSC Industrial currently carries a Zacks Rank #3 (Hold).

Solid Revenue Trends

MSC Industrial generated revenues of around $1,055 million in third-quarter fiscal 2023 (ended on Jun 3, 2023), up 10% from the year-ago quarter. Average daily sales growth was 11.7%, approximately 11 percentage points higher than the Industrial Production Index. This marked the second consecutive quarter that MSM has surpassed the index by double digits.  This is being aided by acquisitions, price and strong momentum in growth initiatives.

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Also, the company witnessed growth of more than 80% year over year from the public sector, driven by existing contracts, along with some significant wins.

Upbeat Guidance for Fiscal 2023

The third quarter of fiscal 2022 marked the fifth consecutive quarter of double-digit average daily sales growth for the company. MSM expects this outperformance to continue as it executes on its five growth drivers, which are solidifying metalworking, leveraging its portfolio strength, expanding solutions, growing e-commerce and diversifying customers and end markets with a particular focus on the public sector.

MSC Industrial now expects average daily sales growth of 10-11% for fiscal 2023, higher than the 5% to 9% range stated earlier. The adjusted operating margin is expected to be around 12.7%.

The company expects additional savings of $15 million from its Mission Critical initiative. These savings, combined with strong productivity, are expected to boost margins.

Strategic Acquisitions to Aid Growth

In January 2023, the company completed the acquisition of Ohio-based companies, Buckeye Industrial Supply Co. and Tru-Edge Grinding Inc. This will help fortify and expand its position as the leading metalworking supply distributor in North America. Tru-Edge, along with the company’s existing regrinding business, represents an adjacent value-added service to its core cutting tool business, which signifies a new avenue for growth.

The addition of Buckeye and Tru-Edge builds on MSC’s acquisitions of Deco Tool Supply, Engman-Taylor Company, Wm. F. Hurst Co. and AIS in recent years to expand its reach to manufacturers in the Midwest.

Strong Balance Sheet to Aid Investment in Business

The company’s net debt at the end of the fiscal third quarter was $406 million, which was around $355 million lower than last year’s quarter. This was due to the payback of its revolving debt utilizing the proceeds from the accounts receivable securitization in the fiscal second quarter. MSM’s total debt-to-total capital ratio at the quarter end was 0.24, lower than the industry’s 0.40. The times interest earned ratio was 21.0, higher than the industry’s 6.5.

The company’s capital allocation priority remains investing in growth initiatives to drive portability and pursuing margin-accretive deals through strategic mergers and acquisitions while returning cash to shareholders through dividends.

Key Picks

Some better-ranked stocks from the Industrial Products sector are Worthington Industries, Inc. (WOR - Free Report) , Astec Industries, Inc. (ASTE - Free Report) and Terex Corporation (TEX - Free Report) . WOR and ASTE sport a Zacks Rank #1 (Strong Buy) at present, and TEX has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Worthington Industries has an average trailing four-quarter earnings surprise of 14.9%. The Zacks Consensus Estimate for WOR’s fiscal 2023 earnings is pegged at $5.65 per share. The consensus estimate for 2023 earnings has moved 22.6% north in the past 60 days. Its shares have gained 21% in the past six months.

Astec has an average trailing four-quarter earnings surprise of 20%. The Zacks Consensus Estimate for ASTE’s 2023 earnings is pegged at $2.81 per share. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. ASTE’s shares have gained 18% in the last six months.

The Zacks Consensus Estimate for Terex’s 2023 earnings per share is pegged at $1.61. Estimates were unchanged in the last 60 days. It has a trailing four-quarter average earnings surprise of 27.1%. TEX has gained 2% in the past six months.

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