MSC Industrial Direct Co. is a leading North American distributor of metalworking and maintenance, repair and operations (MRO) products and services. We help our customers drive greater productivity, profitability and growth with over 1 million product offerings, our inventory management and other supply chain solutions, and deep expertise from more than 75 years of working across industries.
The company offers the following:
- Metalworking
- MRO – maintenance, repair and operations
- ControlPoint Inventory Management
- Business Needs Analysis
(Source: MSC Industrial Direct).
https://investor.mscdirect.com
The company offers approximately 1.9 million stock keeping units (SKUs) in 28 branch offices, 11 fulfillment centers, and 7 regional inventory centers throughout the United States, Canada, Mexico, and the United Kingdom.
Some metrics I look for –
Safety:
Dividend Safety Score – 84 – out of 99 – considered “very safe”
Current Ratio (look for a number higher than 1, higher the better) – 2.30
Debt to Equity (lower the better) – 0.68
Payout Ratio – 77.10%
Estimated Earnings Growth Rate – 5 year – 9.12%
Dividend history:
Years of dividend increases: 18
Dividend growth rate – 5 year – 11.51%
Current yield: 3.59%
Current dividend: $3.00
The next $0.75 dividend is payable on January 25, 2022 to shareholders of record at the close of business on January 11, 2022. The ex-dividend date is January 10, 2022.
The company also has offered special dividends in the past. In December 2020, they paid a $3.00 special dividend and a $5.00 special dividend in December 2019.
Valuation:
DCF model: $88.97
P/E Mean Reversion: $84.50
Dividend Yield Theory: $95.24
Average of the three valuations – $89.57
Analyst Consensus Estimate (1 Year) – $98.86
Current price: $84.33 (12/23/21)
Potential discount – ~6% off valuation metrics and analysts see an almost 15% 1-year upside.
Commentary:
MSM is a $4.69b by market cap industrial supply company that provides thousands of products and services nearly on-demand for their clients, which include everything from small machine shops to large manufacturing companies, to government agencies. They offer over 500,000 products next-day.
The company has been in business since 1941 and has been a serial acquirer over the past many years, including Rutland Tool and American Tool Supply (ATS) in 2011, ATS Industrial Supply in 2012, Barnes Distribution North America in 2013, DECO Tool Supply Co in 2017, All Integrated Solutions in 2018, and TAC Global Solutions in 2019.
This off-the-radar company is behind the scenes in the industrial supply business but is integral in the operations of thousands of companies around the world.
This company is in the industrial sector of the economy and their business growth and earnings is cyclical. The stock is flat on the year and their revenue has been flat for the past few years, but analysts expect the company’s revenue to grow over the next 5 years, which makes it a potentially good value compared to the growth ahead.
The dividend history, high yield and high growth, with the potential for special dividends, should pique dividend growth investor’s interest.
Let me know what you think!
Disclosure: I have owned MSM since 8/2019.