When I last wrote on MSC Industrial (MSM) about a month ago, I suggested that the solid average daily sales growth being reported by Grainger (GWW) and Fastenal (FAST)
on a monthly basis was threatening to put the company in the penalty
box with some investors. See, the challenge for MSC Industrial has long
been in proving that it's more than a cyclical industrial supplier and
that it can grow consistently, albeit even if not on the same level as
Fastenal.
Unfortunately for investors, MSC Industrial's fiscal
third quarter earnings were decidedly mediocre in that respect. Although
the company did as it said it would in terms of revenue and exceeded
its own guidance for operating efficiency, the relatively weak daily
growth highlights the challenges of the company's focus on the
metalworking industry and puts even more pressure on management to
exploit the BNDA acquisition for all its worth in terms of broadening
its addressed markets.
The question for investors now is one of
time horizon and patience. I do believe the company is making
considerable investments today that will underpin above-average growth
in the coming years (likely starting around the second half of 2014). I
likewise believe that U.S. manufacturing (and particularly metalworking
businesses) can and will recover in 2014. So while I continue to find
MSC Industrial undervalued on a long-term basis, the exposure to the
clearly underperforming metalworking industry could make it harder for
these shares to outperform in the meantime.
Please continue here:
Weak Metalworking Corroding MSC Industrial's Growth
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