When seeking out "Hidden Gems," Tom Gardner, co-analyst for the Motley Fool newsletter of the same name, couldn't have found a more natural fit than utterly un-sexy safety equipment manufacturer Mine Safety Appliances (NYSE:MSA). Also perfectly natural: That we'd bring our readers up to speed on the company in plenty of time for Thursday's third-quarter 2006 earnings report.

What analysts say:

  • Buy, sell, or waffle? Four analysts follow Mine Safety, each rating it a hold.
  • Revenues. On average, analysts expect to see just 2% revenue growth tomorrow. $222.3 million is the target.
  • Earnings. Profits are predicted to fall 11% to $0.41 per share.

What management says:
Mine Safety continues to buck the headwinds of decreased U.S. government spending on its wares -- a consequence of (1) the military dividing its Advanced Combat Helmet orders among three different producers and (2) continued delays in the release of U.S. Assistance to Firefighter Grants.

In last quarter's earnings report, CEO John Ryan also attributed what little growth there was in business to two factors: greater self-contained breathing apparatus (SCBA), fire helmet, and disposable respirator sales to Europe; and other international sales growth consisting primarily of the revenue streams acquired along with Mine Safety's January purchase of South African safety equipment maker Select PPE.

What management does:
To listen to Ryan, it seems the company is plenty occupied just keeping its business on an even keel these days. With the evaporation of its U.S. government sales, it's impressive that the firm has kept its rolling gross margin on an upward trend over the last three quarters. That success isn't showing up on the lower lines of the income statement yet, however. With selling, general, and administrative costs still rising despite flat sales in the last six months, and the expensing of stock options, now required, also weighing on results, perhaps the best that can be hoped for is what we see below -- operating margins that, if not clearly rising, at least aren't collapsing.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

39.5

39.3

38.6

39.1

39.2

39.5

Op.

13.6

13.3

12.9

13.8

14.0

13.8

Net

8.6

8.7

8.4

9.0

8.4

8.1

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
For all its troubles -- and not those of its own making, mind you -- Hidden Gems co-lead analyst Tom Gardner continues to laud Mine Safety as "a great company that just hasn't been priced attractively enough to earn a second recommendation." Of course, he did say that a good 25% worth of gains ago. Although the company remains a real winner for our members, outperforming the S&P 500 126% to 37% since Tom recommended it, the lower price on a business whose intrinsic merits haven't changed since it was picked should be viewed by potential owners (and adders) as a good rather than a bad thing.

Once sales begin to pick up again, once Mine Safety has replaced its lost U.S. government revenue with commercial sales and begins to grow once more, don't expect today's prices to remain on offer.

Competitors:

  • Honeywell (NYSE:HON)
  • Lakeland (NASDAQ:LAKE)
  • Abatix (NASDAQ:ABIX)

Customers:

  • Home Depot (NYSE:HD)
  • Airgas (NYSE:ARG)
  • WW Grainger (NYSE:GWW)

Disappointing as Mine Safety's underperformance of the S&P has been over the last year, the stock remains Tom's second most successful pick ever at Hidden Gems, providing our members with more than a double. And his best pick? It's nearly a four-bagger already. Find out about the little oven-maker that could (quadruple, that is) when you accept your free trial subscription to Hidden Gems.

Fool contributor Rich Smith does not own shares of any company named above. Home Depot is an Inside Value pick. The Fool has a disclosure policy.