Downgrades for Fastenal, other distribution companies

Last week, Ryan Merkel, an analyst with William Blair & Co., lowered ratings on several companies in the industrial distribution industry, because of slower global growth and a stronger U.S. dollar. The companies include MSC Industrial of Melville, N.Y.; Wesco International Inc. of Pittsburgh; Airgas of Radnor, Pa.; and Winona-based Fastenal Co.

Fastenal reported January sales that indicated that top-line growth was moderating. Those results, plus soft results from Airgas and W.W. Grainger, convinced Merkel to look at the overall group.

Merkel is a long-term bull on Fastenal but doesn’t see a lot of share appreciation in the next two years. He changed his “outperform” rating to “market perform.” Merkel estimates Fastenal’s 2015 earnings per share will be in the $1.80 per share range and added: “We fear $2 becomes the best case for 2016, causing shares to remain stuck in the low $40s for another 12 months.” Fastenal is trading around $39.96 per share.

Merkel also moved MSC Industrial, Wesco International and Airgas to “market perform.” “The key macro and industrial company metrics we follow are all pointing yellow or red,” Merkel said.

Patrick Kennedy


Low oil prices are a $250M benefit to 3M

3M CEO Inge Thulin made a presentation last week to analysts at J.P. Morgan’s Aviation, Transportation and Industrials Conference. In his discussion he gave analysts an update of the strategies and financial goals 3M laid out in November 2012. Included were updates on prospects for Western Europe, Central Europe, Asia and Latin America.

But analysts were also keen to learn what sustained low oil prices would mean for 3M. Stephen Tusa of J.P. Morgan summed up Thulin’s oil comments in a research note Tuesday. “The main impact of low oil prices to 3M is on raw materials,” Tusa wrote. “They [3M] expect the benefit from oil to come in at the high end of their range, at approximately $250 million.”

Patrick Kennedy


Target cuts help stock but hurt employees

Target announced last week that it may cut thousands of jobs over the next two years at its Minneapolis headquarters. Target was vague about the actual number and timing, though. Several analysts raised their price target on Target’s shares believing the cuts will eventually improve the company financially but did acknowledge how difficult it will be for employees.

Sean Naughton of Piper Jaffray told the Star Tribune last week: “No doubt the hardest part is the waiting to find out who is going to be let go.”

Patrick Kennedy