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MSC Industrial (MSM) wins two upgrades to $135 targets after a 15% drop on its quarter
Jefferies and Stephens both lifted MSC Industrial Direct Co., Inc. a notch after its fiscal fourth quarter report, one citing faster volume growth and the other a share price below its bear case level.
$135. Jefferies and Stephens landed on the same new price target for MSC Industrial Direct Co., Inc. (MSM) as each raised its rating one notch a day after the distributor's fiscal fourth quarter report.
Jefferies moved the stock to Buy from Hold, and Stephens analyst Tommy Moll moved it to Overweight from Equal Weight, Investing.com reported. Both targets rose from $130. The shares traded at $112.43 after falling about 15% on the results, the outlet said.
The new targets sit 20.1% above that price, using $135 against $112.43, as calculated by Trend & Ticker.
Two routes to the same $135
Jefferies pointed to faster volume growth in core and National Accounts customers and to payoff from changes in the sales force. It sees a path to EBIT (earnings before interest and taxes) margins in the mid teens, against about 10% now.
Its new target rests on a multiple of 14 times its own fiscal 2027 EBITDA (earnings before interest, taxes, depreciation and amortization) estimate, up from 13.5 times, according to Investing.com.
Stephens made a valuation call. Moll had treated $113 as a bear case level, and the drop took the stock below it. He also cited a pickup in the economy and new management's work on growth and margins.
What the release showed
The company, which issues its releases as MSC Industrial Supply Co., reported results for the quarter ended August 29 on October 22. The key lines from its release:
- Net sales rose 10.3% to $1.079 billion, a record quarter.
- Average daily sales grew 8.6%, above the top of the company's guided range.
- Adjusted earnings per share rose 33% to $1.45, while GAAP diluted EPS fell to $0.85 from $1.01.
- Adjusted operating margin widened to 10.9% from 9.2%, while the GAAP margin slipped to 6.7% from 8.6%.
- Free cash flow (operating cash flow minus capital spending) rose to $63.8 million from $58.5 million.
Adjusted operating income topped the GAAP figure by $45.0 million in the quarter, as calculated by Trend & Ticker. That gap is what splits the two EPS lines.
"We had a strong finish to fiscal 2026, with fourth quarter results exceeding our expectations and sales achieving record quarterly levels," Chief Executive Martina McIsaac said in the release.
Faster sales, slower cash conversion
For the first quarter of fiscal 2027, MSC guided to average daily sales growth of 9.5% to 10.5% and an adjusted operating margin of 9.5% to 10.1%. McIsaac said first quarter sales so far show low double digit growth.
Cash is set to trail. The company expects free cash flow conversion of about 80% to 90% in fiscal 2027, down from 102% in fiscal 2026, with capital spending of $90 million to $100 million against $81.3 million.
Net debt stood at about $411.9 million at August 29, from $476.9 million of total debt and $65.0 million of cash, as calculated by Trend & Ticker.
The release gave no full year range for sales, margin or EPS, so the first quarter's 9.5% to 10.5% sales goal is the only growth yardstick until the next report.
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