Safety First: Why Baird Upgraded MSA Safety Shares

MSA Safety Incorporated MSA reported Tuesday after the market close with better-than-expected fourth-quarter results and 17-percent year-over-year revenue growth.

The Analyst

Baird analyst Richard Eastman upgraded MSA Safety from Neutral to Outperform and increased the price target from $89 to $94.

The Thesis

The Q4 results reflected a broad-based uptick in industrial product demand and sales, as well as continued share gain and improved international traction for self-contained breathing apparatus, or SCBA, sales, Eastman said in a Thursday note.

Sales and profits from the recently acquired Globe business continue to contribute incrementally, with the first-year accretion on track to meet or exceed the 15-20 cents per share GAAP guidance, the analyst said.

Baird sees strength in the workplace safety equipment maker's sequential order growth that supports next-12-month growth in SCBA. French ACH orders are solidifying sales prospects for the second half of 2018 and the short-turns industrial businesses are showing continued improvement, Eastman said.

Based on current trends, MSA guided to mid-single-digit percentage core/LC sales growth in calendar 2018, according to Baird. The research firm projects 30-35 percent operating profit leverage on the strength of cost and operational discipline, pricing and international operational efficiencies.

"Product liability cash flow appears structured for neutral impact over the next few years," Eastman said.

Baird raised its calendar 2018 and 2019 adjusted earnings per share estimates to $4.30 and $4.84, respectively. MSA's valuation is attractive, Eastman said.