Company Overview
Brady Corporation makes identification solutions and workplace safety products. This includes a variety of products such as RF tags, barcode scanners, identity labeling, and safety signs. Their products are used in warehouse automation, building security, hospitals, and other industrial buildings. The company goes back to 1914, and still has members of the founding family on the board of directors. By the 2000s the company had grown stagnant. In 2014 they brought in a new CEO and began to turn the company around.
Brady’s products fill various niches. For example, in the hospital you now get a barcode bracelet that gets scanned prior to administering medicine. Chances are, that system was made by Brady. They also make RF readers and labels for automation. Generally they make a lot of products people use, but don’t think about. They also have building security and access controls, something that will, sadly, continue to be a necessity going forward.
Management
The current CEO is Russell Shaller. He has been with the company since 2015 and CEO since 2022. He has a degree in electrical engineering and keeps the company on a technological focus. Insiders own over 3% of the company.
Mine Safety Disclosures
None
Growth Strategy
Since 2014 the company has been turning itself around. It reports primarily in GAAP earnings, as opposed to previous vague accounting. They started increasing R&D spending and eventually sales spending. At the time, the company had negative growth, but by 2018 revenues and earnings started to increase. They view industrial automation as their best growth market and have been adding software applications to compliment their RF technology. From their most recent 10K:
“Our strategy for growth includes an increased focus on certain industries and products, streamlining our product offerings, expanding into higher growth end-markets, improving the overall customer experience, developing technologically advanced, innovative and proprietary products, and improving our digital capabilities.”
The company continues to allocate 4.% of sales to its R&D budget and growing. This is up from 3.2% in 2016 (on increased revenues). They view it as a priority to develop new and innovative products to continue to grow the business. They have also been improving the company cost structure, as evidenced by their profit margins. Their net margins have improved from -13% in 2013 to +13% in their latest filings. Management continues to look for ways to lower SG&A expenses.
The company also engages in acquisitions, historically doing about 1 per year. They finance this with cash flows, as opposed to debt. Having diverse end markets helps BRC to weather downturns. No customer makes up more than 10% of their business.
Balance sheet and efficiency
BRC has a stellar balance sheet, with a net cash position. They pay a dividend, which has increased every year for 34 years. They also use their cash flows to buyback shares, last year reducing share count by 3.45%. The total shareholder yield (dividend & buybacks) is just over 5%.
BRC boasts a ROIC of 16.7%, which has increased almost every year since 2014 when they had negative returns. Their gross margins are 49.4% and net profit margins are 13%. The company has used all this to grow EPS at a 15% CAGR for the last 5 years.
Risks
EPS has grown much faster than revenues, which only have a 5 year CAGR of 2.56%. Brady is investing into growing their sales force, and anticipates being able to grow sales faster than GDP growth. If they are not able to continue their increasing efficiency, it is possible their EPS growth will slow.
Almost half of the company’s business is done overseas, so they are subject to exchange rate fluctuations. They have also experienced supply chain issues during the last few years, though these appear to be normalizing.
Valuation & Technicals
BRC has a 5 year average P/E ratio of 20.07, P/B of 2.84, and P/FCF of 16.6. Currently its trading at a P/E of 15.89, P/B of 2.72, and P/FCF of 13.3.
Given that all its metrics are below its historical norms, the stock is likely slightly undervalued.
Morningstar has a Q value of $59.37 vs its current trading price of $55.77, which backs up that theory. Guru focus has a fair value of $55.86.
The stock is trading right at strong resistance of $56, where it has been since it announced earnings in August. I would wait until the stock moved up or down before buying. Picking up shares at $52 or even $48 would provide an extra margin of safety.
Conclusions
In my opinion, Brady corporation is a company that has a lot of niche products that support growing fields. Medical care, security, and automation are areas with secular tailwinds. This is in the package of a company trading at low multiples and has a great history of returning cash to shareholders. BRC does not receive a lot of coverage (only 2 analysts cover it) and has quietly built a solid, growing, and durable business.
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