MSC Industrial (MSM) Shares Gain 30.4% YTD: What's Driving It?
MSC Industrial Direct Company, Inc. MSM shares have rallied 30.4% in the past year, outperforming the industry’s rise of 27.6% and the S&P 500’s 27.1% growth.
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Let’s discuss the factors driving this Zacks Rank #3 (Hold) stock.
Revenue Trends Solid
MSC Industrial generated revenues of $1.04 billion in fourth-quarter fiscal 2023 (ended Sep 2, 2023), up 1.3% from the year-ago quarter. Average daily sales growth was 9.3%, approximately 9 percentage points higher than the Industrial Production Index. This was aided by acquisitions, price and strong momentum in growth initiatives.
For fiscal 2023, net sales rose 8.6% year over year to $4.01 billion. Average daily sales growth was 11.2%, marking an increase of approximately 10 percentage points from the Industrial Production Index.
Mission Critical Initiative to Aid Growth
In fiscal 2023, MSC Industrial completed its three-year Mission Critical journey that strengthened its growth trajectory and operational excellence. The company plans to continue its Mission Critical journey.
MSM expects to keep delivering revenue growth by executing its five growth drivers. These 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 aims to outperform the IP Index by 400 basis points or more and generate incremental margins of at least 20% over the course of the cycle . This permits the company to pursue its longer-term goal of operating margins in the mid-teens and ROIC above 20%.
Strong Balance Sheet to Aid Business Investments
MSM’s net debt at the end of fiscal 2023 was $404 million, lower than the $751 million reported last year. This was due to the payback of the company’s 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’s end was 0.23, lower than the industry’s 0.43. The times interest earned ratio was 21.2, higher than the industry’s 6.7.
The company prioritizes capital allocation by investing in growth initiatives to drive portability, and pursuing margin-accretive deals through strategic mergers and acquisitions while returning cash to shareholders through dividends.
In January 2023, MSM completed the acquisitions of Ohio-based companies — Buckeye Industrial Supply Co. and Tru-Edge Grinding Inc. This will help fortify and expand MSC Industrial’s position as the leading metalworking supply distributor in North America.
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.
Key Picks
Some better-ranked stocks from the Industrial Products sector are Resideo Technologies, Inc. REZI, Applied Industrial Technologies AIT and A. O. Smith Corporation AOS.
REZI currently sports a Zacks Rank #1 (Strong Buy), and AIT and AOS carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Resideo Technologies’ 2023 earnings per share is pegged at $1.48. The consensus estimate for 2023 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 5.7%. REZI shares have rallied 15.6% year to date.
Applied Industrial has an average trailing four-quarter earnings surprise of 15%. The Zacks Consensus Estimate for AIT’s 2023 earnings is pinned at $9.43 per share, which indicates year-over-year growth of 7.8%. Estimates have moved up 4% in the past 60 days. The company’s shares have gained 40% year to date.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings is pegged at $3.77 per share. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days and suggests year-over-year growth of 20.1%. The company has a trailing four-quarter average earnings surprise of 14%. AOS shares have gained 45.6% year to date.
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A. O. Smith Corporation (AOS) : Free Stock Analysis Report
Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report
MSC Industrial Direct Company, Inc. (MSM) : Free Stock Analysis Report
Resideo Technologies, Inc. (REZI) : Free Stock Analysis Report
