Estimates have been falling for MSA Safety Incorporated (MSA) after the company reported disappointing first quarter results on April 22. The negative revisions have been significant enough to drive shares of MSA to a Zacks Rank of 5 (Strong Sell). That puts the stock in the bottom 5% of all companies we rank here at Zacks.
And despite the weak earnings momentum, shares of MSA trade at a premium to their historical multiples on earnings and book value.
MSA Safety Incorporated develops, manufactures and supplies safety products for a variety of industries, including fire service, oil, gas and petrochemical, construction, mining and utilities, as well as the military. Its primary products include self-contained breathing apparatus, fixed gas and flame detection systems, handheld gas detection instruments, head protection products, fall protection devices and thermal imaging cameras.
First Quarter Results
MSA reported its first quarter results on April 22. Adjusted earnings per share came in at 39 cents, which was well below the Zacks Consensus Estimate of 59 cents.
Net sales fell 2% year-over-year to $265.0 million, missing the consensus of $287.0 million. Modest growth in North America and Europe were more than offset by an 11% decline in International (ex-Europe) sales.
Sales of self-contained breathing apparatus (SCBA) plunged 22% in North American due to ongoing delays in securing regulatory product approvals. However, sales of MSA core products were up 3% in local currency, while margins in these product groups increased 130 basis points year-over-year.
Following the disappointing Q1 results, analysts revised their earnings estimates significantly lower for MSA for both 2014 and 2015. This drove the stock to a Zacks Rank #5 (Strong Sell).
The 2014 Zacks Consensus Estimate is now $2.31, down from $2.80 before the report. The 2015 consensus is currently $2.97, down from $3.28 over the same period. You can see this dramatic drop in the company's "Price & Consensus" chart:
Despite the big Q1 miss and subsequent negative estimate revisions, shares of MSA are only down about 6%. It doesn't look cheap at this level either. The stock trades around 22x 12-month forward earnings, well above its 10-year median of 17x and the current industry median of 14x. And its price to book ratio of 3.6 is also above its historical median of 3.2.
The Bottom Line
With falling earnings estimates and premium valuation, investors should consider avoiding MSA until its outlook improves.
Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.