DA Davidson's latest analyst note points to strengthening demand across industrial distribution and equipment manufacturing, with particular opportunity emerging from data center expansion and other structural trends.
Analyst Chris Dankert launched coverage on a 16-company set of diversified industrial firms, and singled out three buy-rated names based on a combination of survey results, a macro model and company-specific catalysts. The firm's monthly survey of private industrial distributors showed volume growth of 5.8% year-over-year in May, marking the seventh straight month of positive volume trends. At the same time, average gross pricing rose 4.5% year-over-year in May, the highest reading since April 2023. DA Davidson attributed the pricing increase to higher diesel and freight costs along with tariff pressures.
DA Davidson's macro model reinforced the survey signal. The firm's April index reading of 7.5% was characterized as the strongest level in more than three years, supporting the view that demand is improving. The note emphasized that secular tailwinds - notably data center build-out, reshoring and investment in automation - are translating into tangible impacts across the industrial landscape.
Company snapshots
MSC Industrial Direct Inc. (MSM) - DA Davidson initiated coverage with a buy rating and assigned a $145 price target. The firm pointed to an increasing probability of favorable price and volume revisions driven by both the survey and macro data. DA Davidson also highlighted company actions that could drive share gains, including a recent sales force realignment, a digital refresh and stepped-up marketing. Management's ongoing cost optimization was expected to create operating leverage above historical levels. The analyst sees room for multiple expansion if margins improve, and noted MSC's 3% dividend yield and a stronger capital structure as additional supports.
Regal-Rexnord Corp. (RRX) - DA Davidson began coverage with a buy rating and a $260 price target, citing particularly strong exposure to accelerating data center construction. The firm said Regal-Rexnord's current backlog should support double-digit organic growth into 2027 and beyond. Deleveraging was described as a material element of the investment thesis, with interest expense savings accruing as net leverage targets fall; the analyst expects net leverage to be on pace to decline below 2.0 times by the end of 2027. The note estimated that data center orders add roughly 11.5% to organic sales for 2027.
WESCO International, Inc. (WCC) - DA Davidson started coverage with a buy rating and a $440 price target. The firm said WESCO stands to gain from multiple tailwinds, including data center construction, a recovery in the North American industrial cycle and rising demand for power generation. The firm pointed out that data center and utility markets account for approximately 40% of WESCO's sales today, a mix the analyst believes positions the company for continued positive estimate revisions.
Implications and context
DA Davidson's combined survey and macro indicators suggest improving demand conditions for distributors and equipment makers. The analyst note frames data center activity as a tangible secular driver that is already contributing to company backlogs and organic sales growth in the firms highlighted. At the same time, the firm flagged pricing gains tied to input-cost pressures such as diesel, freight and tariffs, which have supported gross pricing trends.
Summary outlook
The analyst coverage launch frames MSC Industrial Direct, Regal-Rexnord and WESCO International as early beneficiaries of improving end-market dynamics and structural demand drivers. Each company was cited for specific operational or market advantages - from sales force and digital initiatives at MSC to backlog-driven growth and deleveraging at Regal-Rexnord, and a favorable end-market mix at WESCO.