Brady Corporation BRC currently seems to be a smart choice for investors seeking exposure in security and safety services. The company’s fundamentals are strong. Further, its upwardly revised earnings estimates made it more lucrative.
This Milwaukee, WI-based company currently carries a Zacks Rank #2 (Buy) and has a VGM Score of B. It belongs to the Zacks Security and Safety Services industry, currently placed in the top 39% (with Zacks Industry Rank #99) of more than 250 Zacks industries. Notably, the top 50% of the Zacks-ranked industries tend to outperform the bottom 50% by a factor of more than 2 to 1.
We believe that providers of security and safety services gain from increase in industrial activities worldwide as well as growing awareness for safety and security of work facilities, and workers.
Below we discussed why investing in Brady will be a smart choice for investors.
Share Price Performance, Impressive Earnings Outlook: Market sentiments seem to be working in favor of Brady over time. In the past year, the company’s share price has gained 26.1% against the industry’s decline of 0.1%.
It is worth mentioning here the company delivered positive earnings surprise in the three of the last four quarters while recorded in-line results once. Average earnings surprise is a positive 5.71%. In the second quarter of fiscal 2019 (ended Jan 31, 2019), the company’s earnings beat the Zacks Consensus Estimate by 3.77%.
For fiscal 2019 (ending July 2019), Brady anticipates gaining from investments to develop products, automation of manufacturing facilities and driving operational excellence. It now anticipates earnings per share of $2.25-$2.35, higher than the previously mentioned $2.20-$2.30. Also, the mid-point of the new projection is higher than earnings of $1.73 per share recorded in fiscal 2018 (ended July 2018).
In the past 60 days, earnings estimates for fiscal 2019 have been revised upward by three brokerage firms and for fiscal 2020 (ending July 2020) increased by one. Currently, the Zacks Consensus Estimate is pegged at $2.31 for fiscal 2019 and $2.49 for fiscal 2020, reflecting growth of 1.3% and 0.8% from the respective 60-day-ago tallies.
Brady Corporation Price and Consensus
Brady Corporation Price and Consensus | Brady Corporation Quote
Organic Sales: Brady’s organic sales in the fiscal second quarter increased 2.3% year over year. The results were driven by 3.6% organic growth for the Identification Solutions segment, partially offset by 0.9% decline for the Workplace Safety segment.
The company is hopeful of impressive organic sales performance in fiscal 2019. Organic sales growth is predicted to be 3-5% in the year. On a segmental basis, organic sales are anticipated to increase 4-5% for Identification Solutions and 1-3% for Workplace Safety.
Shareholder-Friendly Policies: Brady remains committed to rewarding shareholders handsomely through dividend payments and share buybacks. In the past five fiscal years (2014-2018), the company’s dividend payments have grown from 78 cents per share to 83 cents. In the first half of fiscal 2019 (ended January 2019), it used roughly $22.3 million to pay dividends to shareholders, reflecting 4.2% growth over the year-ago period. It is worth mentioning here that the company hiked the annual dividend rate by 2.4% in September 2019.
Also, the company repurchased 32,771 shares in the fiscal second quarter and was left with authorization to buyback approximately 1.9 million shares.
Growth Investments: Brady efficiently uses capital for capacity expansion, and research and development. In the fiscal second quarter, the company invested approximately $6.1 million for purchasing property, plant and equipment. This amount reflected an increase of 31.1% over the year-ago quarter. Also, research and development expenses totaled $11 million in the fiscal second quarter.
For fiscal 2019, the company anticipates capital expenditure of $30-$35 million. It also expects increases in research and development expenses by 6% over the previous year.
Debt Profile: Brady’s long-term debt at the end of the second quarter of fiscal 2019 was $51.6 million. The company’s debt profile is better than the industry. Its debt/equity of 6.4% is significantly lower than the industry’s 72.6%.
Other Key Picks
Some other top-ranked stocks in the Zacks Industrial Products sector are DXP Enterprises, Inc. DXPE, Sun Hydraulics Corporation SNHY and Roper Technologies, Inc. ROP. While DXP Enterprises and Sun Hydraulics currently sport a Zacks Rank #1 (Strong Buy), Roper carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for all these three stocks have improved for the current year. Further, average earnings surprise for the last four quarters was a positive 46.55% for DXP Enterprises, 2.27% for Sun Hydraulics and 4.96% for Roper.
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