The Real Reason Why MSM Guided Light
MSM had an ok quarter, but the guidance stunk. I don't talk about this company too much because it has been expensive for a while. Going into the report, it traded 18 PE and 10.5X EV/EBITDA. This is similar to GWW and, to be fair, much cheaper than FAST.
Guidance for Q2 is .86-.90 compared to 1.02 consensus and sales of 563-575 compared to 597. The sales are light and represent a sequential decline rather than the 2.5% sequential increase that had been expected. It's expected to be rather flat compared to the 563 last year after the company grew sales 6% in this quarter.
Here is what the new CEO said:
Mr. Gershwind concluded, "As I assume the role of CEO, I remain excited about the future of our company and our long-term strategic vision. In the near-term, both the demand and pricing environments have softened since we last reported and fiscal cliff issues have yet to be fully resolved and digested by our customers. We have very limited visibility heading into the second quarter and as such are planning for a continuation of the current environment. We do see some signs for cautious optimism on the horizon, such as an uptick in December's ISM report, that would bode well should the trend continue. Regardless of environment, we expect to take share, to continue investing in key programs and to balance that with strong expense control like we demonstrated in the first quarter. We remain committed to executing on our time-tested strategy and expect to drive strong growth as the market improves."
I think the key point here is AS I ASSUME THE ROLE, as it looks like this is a set-the-bar-low-for-our-nephew strategy. Something to keep in mind, as this seems rather conservative. If the stock were to trade at 16PE, it would be a bargain. Not exactly sure how much the analysts will drop EPS, but I am guessing that this level works out to 72. Looks like a great spot on the chart too. Not sure we get there, but call it Treasure on the dip.
- Target: 54.74
- Stop: 47.62
- Take-the-money: 50.99