MSM - Msc Industrial Direct

[KCLarkin]

I am reading the 2016 proxy. For The 2016 buyback they did, the sellers are the chairman, ceo and other family members. This group sold 1m shares at 72 during the "buy back"..

Not sure this is that positive

 

the Company entered into a stock purchase agreement with the holders of the Company's Class B common stock under which such shareholders agreed not to participate in the tender offer and the Company agreed to purchase from such shareholders following completion of the tender offer, a pro rata number of shares at the same price per share as will be paid by the Company in the tender offer, such that their percentage ownership and voting power in the Company would remain substantially the same as prior to the tender offer.

 

So, for the family, this was essentially a special dividend. The company had the cash flow and balance sheet to do either a special dividend or a stock buyback. Last time, they did a special dividend. This time, they did a tender, so this suggests management believed the stock was undervalued.

[KCLarkin]

Made this a smallish position today.  Dropped ~17%.  I think management is solid and long term this will work out.  If it keeps getting hammered I might be adding some more.

 

Why the big drop today? I haven't been following too closely since I sold out early this year. But guiding to 7% ADS growth looks good. Is this drop due to margin concerns? Or just Amazon angst?

 

On vacation, so I haven't had time to listen to the call. But price is getting interesting again.

 

Finally listened to the call. Sounds like the price drop was related to a sizeable drop in gross margins. Given the sales growth and operating leverage, I don't think the drop was warranted. I plan to repurchase -- probably a 2.5% position and hope for further price weakness.

[KCLarkin]

I rebuilt this into a 5% position. This is a fairly interesting situation. In the short term, there is very clearly a strong cyclical rebound in the manufacturing and metal-working sector. I think the market is underestimating the potential EPS impact as clients start to burn through inventory and re-stock.

 

In the long term, the threat from Amazon is very real. It is worse than bulls believe but will take much longer than bears believe.

 

My bet is that there will be another short squeeze as the market recognizes the strength of this up-cycle. But I don't have enough certainty on the long-term threat from Amazon to make this a full 10% position unless this gets back down to $60.

[KCLarkin]

https://www.mmsonline.com/blog/post/metalworking-index-hits-six-year-record

 

[KCLarkin]

MSC raises dividend 21%:

https://investor.mscdirect.com/2018-01-03-MSC-Declares-21-Increase-In-Regular-Quarterly-Dividend

[kab60]

Good call you made buying in. I sucked my thumb wanting it a tiny bit cheaper. :)

[KCLarkin]

Good call you made buying in. I sucked my thumb wanting it a tiny bit cheaper. :)

 

Grainger had a great quarter and strong 2018 guidance, so its the distributors have plenty of room to run. I am out of MSM for now but likely got out too early in the mid-90s. Hopefully some Amazon headlines will give me another opportunity.

[KCLarkin]

Metalworking Index hit 61

https://www.mmsonline.com/blog/post/metalworking-index-extends-upward-breakout

 

MSM will have a monster year with the rapid expansion in manufacturing, price increases, and tax cuts