Thursday, KeyBanc Capital upgraded Brady Corp. (BRC) shares to Buy from Hold with a price target of $36. The brokerage raised its 2009 fourth quarter EPS estimate to $0.43 from $0.39, its 2009 estimate to $1.69 from $1.65, and its 2010 estimate to $1.89 from $1.78.
Analyst Anthony Kure said that ahead of BRC's fiscal fourth quarter and fiscal 2009 earnings release, he upgraded the stock to Buy with price target of $36 as he now feels the company is well positioned, relative to its fragmented competitors, to leverage stabilizing global demand conditions.
Despite the year-to-date outperformance, +25% year-to-date vs. +14% for S&P 500, the analyst believes the shares remain undervalued as he expects the company will exceed consensus EPS estimates for fiscal fourth quarter of 2009, currently $0.41.
In addition, the analyst believes the company would announce a full-year EPS guidance range, as a part of its earnings release, which would likely prompt upward estimate revisions for fiscal 2010. At the present time, the consensus estimate for fiscal 2010 stands at $1.76.
The analyst believes this estimate does not fully capture what he believes would be an improved profit performance in a return to a more normalized, albeit modest, return to core growth. BRC's fiscal 2009 guidance is for EPS in the range of $1.61-$1.80, which implies a fiscal fourth quarter EPS guidance range of $0.36-$0.55.
While the analyst expects visibility to remain limited due to nature of BRC's MRO-type sales, which are characterized by rapid order fulfillment of the relatively small orders sizes, he thinks the longer-term upside potential for the shares, based on recent stabilization and sequential improvement in the macro economic environment and solid execution of a differentiated strategy, outweighs the downside risk.
In addition, the analyst believes the company's restructuring and cost reduction actions implemented through fiscal 2009 would likely yield an incremental $0.10-$0.15 to fiscal 2010 EPS through the course of fiscal 2010 and have attempted to capture this in his outlook.
Currently, BRC is up $2.24 or 7.28% and trading at $33.02.
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