On Friday, Loop Capital adjusted its outlook on MSC Industrial (NYSE:MSM) shares, reducing the price target to $72 from $75 while maintaining a Hold rating. The firm's decision came after revising its adjusted earnings per share (EPS) forecast for fiscal year 2025 to $3.60, marking a significant decrease from its previous projection and lower than the consensus expectations.
The adjustment represents a 16% reduction from the analyst's prior estimate of $4.30, which was already the lowest among its peers, and a 24% decrease from the pre-call consensus of $4.76. The shares of MSC Industrial experienced a modest decline following the announcement, which was attributed to expectations of a sharper drop in EBIT margins than previously anticipated.
Despite this, investors appeared to retain some optimism, possibly due to a belief in a bottoming out of the ISM index and an anticipated improvement in end demand going into 2025.
Loop Capital's revised stock price target is based on an 18 times multiple of its lowered fiscal year 2026 EPS forecast, which falls within the company's five-year trading range of approximately 12 to 18 times. The firm suggests that the market is looking past the weaker fiscal year 2025 earnings, although it acknowledges that margins have not performed as well from trough to trough.
The report also notes that while there are significant opportunities for MSC Industrial in the long term, meaningful gains are not expected to materialize until the second half of fiscal year 2025 at the earliest. This timeline coincides with the anticipated impact of the company's digital marketing program. Loop Capital's analysis implies that it will take some time before the program's effects are felt in the company's performance.
In other recent news, Loop Capital revised its outlook on MSC Industrial, reducing the price target to $72 from $75 and maintaining a Hold rating. This change is due to a 16% decrease in the fiscal year 2025 adjusted earnings per share (EPS) prediction, marking a significant drop from consensus expectations. Despite the lower earnings forecast, investors seem to be focusing on the potential for improved demand in 2025.
In other recent developments, MSC Industrial reported decreased average daily sales and a dip in operating margin for its fiscal 2024 fourth quarter and full-year earnings. However, the company managed to improve its gross margin and outlined strategic initiatives to enhance operational efficiency and reduce costs. For the fiscal 2025 first quarter, MSC Industrial expects a 4.5% to 5.5% decline in average daily sales and an adjusted operating margin of 7% to 7.5%.
Loop Capital's revised price target is based on a multiple of the lower fiscal year 2026 EPS forecast. The firm noted that significant opportunities exist for MSC Industrial in the long term, but they do not anticipate substantial gains until the company's digital marketing program begins to show results, expected in the second half of fiscal year 2025. The company's cautious stance for fiscal 2025 reflects continued softness in key manufacturing end markets.
InvestingPro Insights
To complement Loop Capital's analysis, recent data from InvestingPro offers additional context on MSC Industrial's current position. The company's P/E ratio stands at 15.73, suggesting a relatively moderate valuation compared to its peers. This aligns with Loop Capital's use of an 18 times multiple for their price target calculation.
InvestingPro Tips highlight that MSC Industrial has maintained dividend payments for 22 consecutive years and has raised its dividend for 3 consecutive years. This demonstrates the company's commitment to shareholder returns, even in challenging times. The current dividend yield is 4.37%, which may be attractive to income-focused investors.
It is worth noting that the stock has taken a significant hit recently, trading near its 52-week low with a 7.63% decline in the past week alone. This aligns with Loop Capital's reduced price target and the overall cautious outlook for the near term.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide further insights into MSC Industrial's financial health and market position.
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