Reasons to Hold MSC Industrial (MSM) Stock in Your Portfolio
MSC Industrial Direct Company, Inc. MSM has been delivering solid revenue growth, backed by efforts to strengthen its market position and gaining share through strategic investments, as well as diversifying its end markets. Efforts to lower debt levels and savings from its Mission Crticial Initiative are also expected to aid the results.
Shares of the company have gained 30.4% in the past year, faring better than the industry's 20% growth. The Industrial Products sector and the S&P 500 composite have gained 17.5% and 15.1%, respectively, in the same time frame.
MSC Industrial currently carries a Zacks Rank #3 (Hold).
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Solid Revenue Trends
MSC Industrial generated revenues of around $1.06 billion 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.
The quarter marked the fifth consecutive quarter of double-digit average daily sales growth for the company. It was also the second consecutive quarter that MSM had surpassed the index by double digits. This was aided by acquisitions, price and strong momentum in growth initiatives.
Also, MSC Industrial 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
MSC Industrial now expects average daily sales growth to be 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.
Mission Critical Initiative to Aid Growth
The company continues to make solid progress in its three-year Mission Critical journey. MSM expects to continue to deliver revenue growth by executing its five growth drivers. These include 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.
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’s end was 0.24, which was 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.
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.
Key Picks
Some better-ranked stocks from the Industrial Products sector are Caterpillar Inc. CAT, Astec Industries, Inc. ASTE and Eaton Corporation plc. ETN. CAT and ASTE sport a Zacks Rank #1 (Strong Buy), and ETN has a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Caterpillar has an average trailing four-quarter earnings surprise of 18.5%. The Zacks Consensus Estimate for CAT’s 2023 earnings is pegged at $19.81 per share. The consensus estimate for 2023 earnings has moved 11.4% north in the past 60 days. Its shares have gained 51.6% in the last year.
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 22.8% in the last year.
The Zacks Consensus Estimate for Eaton’s 2023 earnings per share is pegged at $8.80. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. It has a trailing four-quarter average earnings surprise of 3%. Shares of ETN have rallied 68.8% in the last year.
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Caterpillar Inc. (CAT) : Free Stock Analysis Report
Astec Industries, Inc. (ASTE) : Free Stock Analysis Report
Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
MSC Industrial Direct Company, Inc. (MSM) : Free Stock Analysis Report
