This month’s stock feature is a company that is never too far from our radar screens. Frankly, I’m a little surprised that MSC Industrial (MSM) has not been selected over the past ten years. Sometimes the best long-term investments aren’t the sexiest. Nuts and bolts matter.

MSC Industrial Direct (MSM) markets industrial products to small- and mid-sized customers throughout the United States. It distributes a full line of industrial products, such as cutting tools, abrasives, measuring instruments, safety equipment, fasteners, welding supplies and electrical supplies. It’s about building and/or fixing things and hence, the health of the general economy matters. Many investors have been rewarded by investments in companies like Danaher, Fastenal, W.W. Grainger and Snap-On and this company is no exception. MSM is worthy of inclusion among these reliable favorites.

The low total return forecast is 12% at Value Line. The stock price could languish a little if the global recession persists.

MSC Industrial (MSM): Business Model Analysis. Continuing with our testing and work-in-progress, we take a look at the judgment milestones for MSC Industrial. The long-term top line and bottom line trends speak for themselves. Based on a growth forecast of 9-10%, projected profitability in the 10% net margin range and a reasonable P/E ratio of 19-20x in the future, the return forecast is 15-16%.

Growth, Profitability, Valuation

Value Line projects long-term sales growth at 9.5%. We’ll use 9.7% for the sales growth forecast based on the regression from 2010-18.

Based on the historical trends, it’s feasible to envision a 10% net margin. The trailing 6-year average is 9.7%. Value Line has a projected net margin of 10.4% in their long-term forecast.

The historical P/E (trailing 6-year average) has been 19.3×. Value Line has a projected average P/E of 22×. At the time of selection (1/12/2015), the average projected annual return for MSM is approximately 15-16%.

The quality RANKING for MSM is 88 (Excellent) with a financial strength composite (percentile ranking) of 97. Earnings stability is 83.

Morningstar has a fair price estimate of $95 (price-to-fair value of 78%) and S&P checks in with a fair value estimate of $83.60 (P/FV of 88%.)

A Main Street Walker

The company has a history of sound decisions. Value Line analyst Simon Shouclair (1/16/2015) points out that “Cash deployment pays off for shareholders. Indeed, MSM has not only raised its dividend, the company has been doling out some substantial special distributions in recent years, including a sizable $3.00 per sh outflow in October 2014. Share repurchases have also helped to boost shareholder value.”

A company that invests in itself when its return forecast is superior is more music to our ears. “Although the untimely stock has been battered of late, patient investors should note the wide total return potential out to late decade.”

Ahhh. Untimely. Battered. Patience. And that’s our time horizon mentioned. Music to our ears, again. There should be little mystery as to why we included the company among of selections for the 2015 Crossing Wall Street Challenge.

Building and fixing Main Street is a great idea.