Thursday, Credit Suisse upgraded MSC Industrial Direct Co. Inc. (MSM) shares to Neutral from Underperform and increased its price target to $46 from $34. The brokerage increased its 2010 EPS estimate to $2.10 from $1.95. The brokerage's 2011 estimate is $2.41.
Analyst Mazari upgraded the stock to reflect better than expected average daily sales growth trends driven by signs of stabilization within the manufacturing sector and certain growth initiatives, branch expansion, Asian sourcing, and distribution network optimization, taking hold.
The analyst increased his top line estimates for fiscal 2010 from 4% to slightly over 7% based on his proprietary distribution sales index. A higher top line combined with some permanent cost takeover drives his 2010 estimate up to $2.10 from $1.95. The analyst raised price target to $46 based on a 19x P/E multiple on his $2.92 estimate of normalized earnings discounted back a little over 2 years.
Looking at a relationship of ISM growth with MSM stock price, there is over a 0.6 correlation but what is also important to note is that the stock moves ahead of a pick up in ISM by about two months. The analyst has had two consecutive ISM readings above 50 now and a lot of that has led to the run up in the name.
MSM shares are currently trading at slightly over 23x P/E multiple on 2010 earnings, a premium of slightly over 15% to the group. Although the analyst likes the MSM story, he would wait for a better entry point and or slightly more visibility.
Currently, MSM is up $0.52 or 1.09% and trading at $48.08.
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