- KeyBanc analyst Ken Newman reiterated an Overweight rating on the shares of MSC Industrial Direct Company, Inc. MSM, raising the price target to $105 from $97.
- The analyst remains positive on the company's stable demand conditions that can drive 20% incremental margins.
- MSC Industrial Direct has achieved its targeted Mission Critical goals that could support structurally higher margins over the coming years.
- Also Read: MSC Industrial Direct Q2 Highlights: 12% Revenue Growth, Earnings Beat, Strong Productivity & More
- In a Bull case scenario, the analyst assumes ~10% sales growth at high-teens incremental in FY23, coupled with stronger price realization, higher volumes in out-year ADS, and accelerated benefits from cost-out initiatives.
- Taking both Bull and Bear cases, the analyst assumes MSD sales growth (~7.7% ADS growth) in FY23 at ~15% incremental margin. The analyst further assumes LSD sales growth at mid- to high-teens incremental in FY24.
- The analyst assumes MSM can successfully realize cost-out benefits and effectively raise price faster than inflation.
- MSM plans to strengthen its focus on driving better penetration with "smaller-sized customers and spot-buy capture". The analyst thinks achieving that growth will likely reflect a mix of digital (i.e., website optimization), marketing, and pricing initiatives.
- Also See: MSC Industrial Inks Exclusive e-Commerce Partnership With MachiningCloud
- Price Action: MSM shares are trading higher by 0.25% at $91.40 on the last check Friday.
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