MSC Industrial Operating In A Weak Environment, Says BMO

The company's third quarter EPS came in better than expected as slow sales were offset by cost reductions. But, fourth-quarter sales and guidance disappointed, and June's ADS drop of 5 percent reflected sequentially weaker conditions.

Although the company said its self-tender/stock repurchase should add to 2017 EPS if there is a full tender, BMO is concerned whether the price band is high enough to generate a full tender.

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"[W]e are more concerned over the weaker distribution environment and remain concerned over MSM's weak sales in high-margin manufacturing and price/mix," analyst R. Scott Graham wrote in a note.

Furthermore, the self-tender could lower the share count by nearly 10 percent and provide $0.23–$0.24 per share of accretion to EPS in 2017.

As such, Graham raised 2016 EPS view to $3.71 from $3.60 and 2017 EPS estimate to $4.02 from $3.85. However, the analyst cut the price target to $78 from $80.

At time of writing, shares of MSC were up 1.81 percent at $73.83.