Will This Downgrade Hurt MSC Industrial Direct (MSM) Today?

NEW YORK (TheStreet) -- MSC Industrial Direct (MSM) has been downgraded to "neutral" from "buy," a result of a valuation call UBS said Thursday. However, the firm also said it sees long-term growth prospects driven by industry consolidation and improving industrial activity. A $90 price target has been assigned.

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Separately, TheStreet Ratings team rates MSC INDUSTRIAL DIRECT as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate MSC INDUSTRIAL DIRECT (MSM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, good cash flow from operations and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 6.6%. Since the same quarter one year prior, revenues rose by 17.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • MSM's debt-to-equity ratio is very low at 0.24 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.37, which illustrates the ability to avoid short-term cash problems.
  • 48.77% is the gross profit margin for MSC INDUSTRIAL DIRECT which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 8.70% is above that of the industry average.
  • Net operating cash flow has increased to $104.38 million or 16.79% when compared to the same quarter last year. In addition, MSC INDUSTRIAL DIRECT has also modestly surpassed the industry average cash flow growth rate of 10.00%.

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