Market Overreaction Moves MSC to 4 Stars
Our outlook for the industrial distributor hasn't changed.
MSC Industrial’s (MSM) shares traded down sharply after the company released its fiscal third-quarter results and fourth-quarter outlook. The company reported solid headline figures, with sales of $744 million and earnings per share of $1.09 meeting management’s guidance and consensus estimates. We believe the sell-off was in response to MSC’s weak gross margin performance and guidance. However, we think the market’s reaction was overblown. We are maintaining our $91 fair value estimate, which puts MSC in 4-star territory.
MSC’s third-quarter gross margin came in at 44.3% versus 45% in the year-ago quarter. Management expects the fourth-quarter gross margin to compress 50 basis points sequentially to 43.8%. We believe the market is worried that MSC’s gross margin compression is indicative of increased competition from Amazon Business (AMZN) and others; however, management said the third-quarter gross margin was negatively affected by a mix shift to lower-gross-margin national accounts and vending.
Brian Bernard does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.