MSC Industrial Holding Up A Little Better Than Expected

The going remains tough for MSC Industrial (MSM) (“MSC”), and management’s ability to get going remains very much a point of debate. While the U.S. economy has likely seen the bottom for this sudden downcycle, significant uncertainty remains as to the shape of the eventual recovery. More concerning to me than the short-term outlook is management’s multiyear track record of missing their own sales growth and margin targets, though the last couple of quarters have been better than expected.

When I last wrote on MSC Industrial after fiscal second quarter earnings, I thought the shares looked modestly undervalued amid considerably uncertainty. The shares have since modestly outperformed the larger industrial sector, though lagging peer/rival Fastenal (FAST) by a wide margin and delivering a more mixed performance relative to Grainger (GWW). At this point, I view MSC as more fairly-valued to slightly undervalued, with near-term upside likely tied to the shape of the recovery (and the market’s on-again/off-again enthusiasm for industrial stocks), while the long-term performance outlook remains tied to management’s ability to successfully execute its latest transformational strategy – a development that can, in my opinion, be very fairly called a “show me story” given past failures.

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MSC Industrial Holding Up A Little Better Than Expected