Brady Corp. – Value Analysis (NYSE:BRC) : September 6, 2017

Capitalcube gives Brady Corp. a score of 41.

Our analysis is based on comparing Brady Corp. with the following peers – Multi-Color Corporation, Zebra Technologies Corporation Class A, Honeywell International Inc., TransAct Technologies Incorporated, 3M Company, Danaher Corporation and Oil-Dri Corporation of America (LABL-US, ZBRA-US, HON-US, TACT-US, MMM-US, DHR-US and ODC-US).

Investment Outlook

Brady Corp. has a fundamental score of 41 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance over the last year is in contrast with the more recent outperformance.
  • It trades at a lower Price/Book multiple (2.42) than its peer median (3.10).
  • The market expects BRC-US to grow more slowly than its peers and for its median ROE to decline.
  • BRC-US‘s median net profit margins and relatively high asset efficiency give it some operating leverage.
  • Changes in annual earnings (relative to peers) are better than the change in its revenues (relative to peers), implying the company is focused more on earnings.
  • BRC-US‘s return on assets has improved from below median to about median among its peers over the last five years.
  • The company’s margins are around the peer medians and do not suggest any benefit from a pricing or an operating cost advantage versus peers.
  • BRC-US‘s revenues have grown more slowly than the peer median over the last few years, which combined with the stock price’s relatively low P/E ratio suggests substandard growth expectations relative to peers.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • BRC-US has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

BRC-US has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 6.88% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 11.88%), and a well-cushioned interest coverage level of 20.52x, BRC-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 7 chosen peers for the company, only 6 of the stocks have an outstanding debt balance. Companies with no debt include TACT-US.

BRC-US has maintained its Quick & Able profile from the recent year-end.

  • BRC-US‘s interest coverage is its highest relative to the last five years and compares to a low of 8.55x in 2014.
  • The increase in its interest coverage to 20.52x from 15.09x (in 2016) was also accompanied by an increase in its peer median during this period to 19.21x from 15.65x.
  • Interest coverage rose 1.86 points relative to peers (and is now higher than its peer median).
  • BRC-US‘s debt-EV is its lowest relative to the last five years and compares to a high of 22.95% in 2012.
  • The decrease in its debt-EV to 6.88% from 12.78% (in 2016) was also accompanied by a decrease in its peer median during this period to 11.88% from 14.58%.
  • Relative to peers, debt-EV fell 3.20 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Multi-Color Corporation 25.92 1.88 4.37 22.58
Zebra Technologies Corporation Class A 31.56 1.16 1.83 12.62
Honeywell International Inc. 15.26 1.34 22.87 35.89
TransAct Technologies Incorporated 0 3.77 189.77 999
3M Company 8.51 2.22 32.35 56.84
Danaher Corporation 16.68 1.49 17.91 27.85
Oil-Dri Corporation of America 4.81 2.99 16.03 171.88
Brady Corporation Class A 6.88 2.48 20.52 86.03
Peer Median 11.88 2.05 19.21 46.36
Best In Class 4.81 3.77 189.77 999

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Company Profile

Brady Corp. engages in the manufacture and market of specialty materials and identification solutions that identify and protect premises, products, and people. The company operates its business through the Identification Solutions (IDS) and Workplace Safety (WPS) segments. The IDS segment manufactures identification and healthcare products under multiple brands. The WPS segment offers workplace safety and compliance products, which are sold under multiple brand names through catalog and digital to a broad range of maintenance, repair, and operations customers. The company was founded by William H. Brady Jr. in 1914 and is headquartered in Milwaukee, WI.

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