MSC Industrial Lagging Despite On-Target Performance

Industrial stocks have held up rather well over the last three months, with investors apparently more confident that the risks to 2023 are priced in now and that the Fed’s efforts to stomp out inflation won’t lead to significant demand destruction. Despite that generally healthy backdrop, MSC Industrial (NYSE:MSM) and other industrial distributors have lagged the industrial sector since my last update, with MSM shares selling off more noticeably in response to fiscal first quarter earnings that weren’t really all that bad.

I do still see risk in the short-cycle industrial outlook, but metalworking-heavy sectors like aerospace, autos, and energy should be healthy, and heavy machinery is likely to hold up at least through the first half of the year. What’s more, the company continues to execute on growth strategies like in-plant sales, vendor-managed inventory, and diversification beyond metalworking. Weaker price and margin leverage remain risks, but MSC Industrial’s valuation is not demanding at this point.

 

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MSC Industrial Lagging Despite On-Target Performance