Mixed earnings reaction puts WESCO International (WCC) under closer scrutiny
WESCO International (WCC) is back in focus after a mixed Q4 update, with revenue meeting expectations and record full year sales, but adjusted operating income and EPS falling short and weighing on the share price.
See our latest analysis for WESCO International.
The mixed Q4 release appears to have checked some of the enthusiasm in the share price, with a 9.45% 1 month share price decline contrasting with a strong 70.18% 1 year total shareholder return. Recent momentum therefore looks to be cooling after a powerful longer term run.
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With record full year sales of US$23.5b, annual revenue and net income growth, and the share price sitting below both analyst targets and an intrinsic value estimate, is WESCO now on sale or already pricing in years of future growth?
Preferred P/E of 19.8x: Is it justified?
On a P/E of 19.8x, WESCO is priced a touch above the peer average of 19.7x, yet still screens as good value against both industry and internal fair value checks.
The P/E multiple compares the current share price of $262.13 to the company’s earnings per share, providing a quick indication of how much investors are paying for each dollar of earnings. For a distributor with forecast earnings growth of 11.24% per year and high quality earnings, this multiple suggests the market is willing to pay a moderate premium without pushing the stock into an obviously stretched zone.
Compared with the US Trade Distributors industry average P/E of 20.3x, WESCO is slightly cheaper, which points to the market not fully pricing it above peers despite its 1 year total shareholder return beating both the US market and the industry. According to Simply Wall St’s fair P/E estimate of 30.5x, the current 19.8x level sits well below where the fair ratio could move toward if sentiment and fundamentals stay aligned with that model.
Explore the SWS fair ratio for WESCO International
Result: Price-to-Earnings of 19.8x (UNDERVALUED)
However, the recent 9.45% 1 month share price decline and softer adjusted earnings metrics highlight how sensitive this distributor can be to shifts in demand or margins.
Find out about the key risks to this WESCO International narrative.
Another view: DCF points to a different kind of upside
While the P/E of 19.8x hints at some upside versus a fair ratio of 30.5x, the SWS DCF model adds a second angle. On this view, WESCO at $262.13 trades below an estimated future cash flow value of $294, which again suggests a discount. However, how comfortable are you with the assumptions behind that cash flow path?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out WESCO International for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 62 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
The mix of positives and concerns in this update leaves plenty of room for your own interpretation, so take a close look at the numbers, consider both sides of the story, and weigh up the 2 key rewards and 2 important warning signs.
Looking for more investment ideas?
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- Target potential mispricing by scanning a curated set of undervalued opportunities through the 62 high quality undervalued stocks.
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- Prioritise resilience by filtering for the 64 resilient stocks with low risk scores.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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