Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Mine Safety? Not Very

Ouch! You know that had to hurt ... the analyst's feelings, that is.

What? Who?
The downgrade. The one that Milwaukee-based stock shop Robert W. Baird slapped on former Motley Fool Hidden Gems recommendation Mine Safety (NYSE: MSA  ) yesterday.

You hadn't heard? Well, the story goes like this: On Monday, Mine Safety reported its second-quarter earnings. The news wasn't bad in and of itself -- sales up 18% and profits up 15% to $0.56 per share -- but it wasn't what they were looking for up on Wall Street ($0.60 per share.) And the stock got slammed, more than 15% since the earnings announcement.

Problem was, Robert W. Baird got caught with its fire-retardant pants down. It didn't get around to downgrading the stock until after the damage had been done, and so got stuck with a 26-percentage-point loss on its pick of last summer.

Ah. Ouch
Exactly. And yet, might Baird have gotten off easy? Reviewing the news, I fear it might have -- and that any investors still hanging around the stock may not be so lucky. Strong growth in sales, it seems, owed in large part to favorable exchange rates. For example, 37% sales growth in Europe included a 22% increase in the value of the euro. Therefore, after currency adjustments, the real sales growth was only 15% in Europe. Which helps to explain why sales at Mine Safety went up 18% -- but piles of unsold inventory grew 25%.

Meanwhile, significant expenditures to expand manufacturing capacity pushed free cash flow generation deeply into the red at Mine Safety. As a result, the company currently sports negative trailing free cash flow of $6.7 million. Seeing as it already sells for a 17 P/E versus 11% anticipated long-term growth, I honestly see no valuation argument in the stock's favor right now.

Inventing problems?
What's bad for Mine Safety could be bad for other folks. Analysts on the earnings call pressed again and again for management to admit to a looming second-half slowdown in its European business. Presumably, they're more worried by earnings warnings at heavy industrial exporters like Oshkosh (NYSE: OSK  ) than reassured by superb profits at just-as-heavy firms like Caterpillar (NYSE: CAT  ) , or at DuPont (NYSE: DD  ) , which makes fire-retardant chemicals. Mine Safety didn't give an inch, denying that it sees any "significant slowdown," rather than citing increased European backlog.

Then again, between its inventory problems and its too-high stock price, I suspect analysts didn't really need to go fishing for additional reasons not to own Mine Safety. I know I don't.

More Foolishness:

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 696257, ~/Articles/ArticleHandler.aspx, 10/23/2016 2:16:40 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
MSA $57.63 Up +0.01 +0.02%
MSA Safety CAPS Rating: *****
CAT $86.33 Down -0.30 -0.35%
Caterpillar CAPS Rating: ***
DD $69.70 Up +0.24 +0.35%
DuPont CAPS Rating: ****
OSK $53.53 Up +0.64 +1.21%
Oshkosh Corporatio… CAPS Rating: ***