WESCO International, Inc. (NYSE:WCC) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Wesco International Inc.’s analysis versus peers uses the following peer-set: W.W. Grainger, Inc. (NYSE:GWW), Avnet, Inc. (NYSE:AVT), Anixter International Inc. (NYSE:AXE), Electrocomponents plc (LON:ECM), Premier Farnell plc (LON:PFL) and Houston Wire & Cable Company (NASDAQ:HWCC). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
|Quarterly (USD million) ||2012-09-30 ||2012-06-30 ||2012-03-31 ||2011-12-31 ||2011-09-30 |
|Revenues ||1,656.2 ||1,672.7 ||1,606.0 ||1,589.5 ||1,580.4 |
|Revenue Growth % ||(1.0) ||4.2 ||1.0 ||0.6 ||3.7 |
|Net Income ||63.4 ||58.9 ||53.0 ||54.8 ||53.9 |
|Net Income Growth % ||7.7 ||11.1 ||(3.4) ||1.8 ||7.3 |
|Net Margin % ||3.8 ||3.5 ||3.3 ||3.5 ||3.4 |
|ROE % (Annualized) ||16.8 ||16.4 ||15.4 ||16.7 ||17.0 |
|ROA % (Annualized) ||7.7 ||7.4 ||6.8 ||7.1 ||7.1 |
Wesco International Inc. trades at a lower Price/Book multiple (1.8) than its peer median (3.3). The market expects WCC-US to grow at about the same rate as its chosen peers (PE of 14.0 compared to peer median of 11.7) and to maintain the peer median return (ROE of 16.3%) it currently generates.
The company’s asset efficiency (asset turns of 2.0x) and net profit margins of 3.5% are both median for its peer group. WCC-US’s net margin continues to trend upward and is now similar to its five-year average net margin of 3.0%.
The company enjoys both better than peer median annual revenue growth of 21.0% and better than peer median earnings growth performance 69.9%. WCC-US currently converts every 1% of change in annual revenue into 3.3% of change in annual reported earnings. We view this company as a leader among its peers.
WCC-US’s current return on assets is around the same as its peer median (7.1% vs. peer median 8.5%). This recent performance contrasts with its less than peer median return on assets over the past five years (6.2% vs. peer median 9.4%) suggesting that the company’s relative operating performance is improving.
The company’s gross margin of 20.3% is around peer median suggesting that WCC-US’s operations do not benefit from any differentiating pricing advantage. In addition, WCC-US’s pre-tax margin is less than the peer median (5.0% compared to 6.9%) suggesting relatively high operating costs.
Growth & Investment Strategy
While WCC-US’s revenues growth has been below the peer median in the last few years (0.1% vs. 5.7% respectively for the past three years), the market still gives the stock an about peer median PE ratio of 14.0. The market seems to see the company as a long-term strategic bet.
WCC-US’s annualized rate of change in capital of 2.4% over the past three years is less than its peer median of 7.1%. This below median investment level has also generated a less than peer median return on capital of 7.4% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.
WCC-US’s net income margin for the last twelve months is around the peer median (3.5% vs. peer median of 4.3%). This average margin and relatively conservative accrual policy (0.8% vs. peer median of -0.0%) suggests possible understatement of its reported net income.
WCC-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also greater than the peer median which suggests some amount of building of reserves.
WESCO International, Inc. provides electrical, industrial, and communications maintenance, repair and operating, and original equipment manufacturers products, construction materials, and advanced supply chain management and logistics services. Its primary product categories include general electrical and industrial supplies, wire, cable and conduit, data communications, power distribution equipment, lighting and lighting control systems, control and automation and motors. The company operates through seven businesses: Automation, Data Communications, Industrial/Construction, Integrated Supply, Industrial/Electrical OEM, International Operations and Utility. The Automation business operates through the following subsidiaries: Cascade Controls, Control Corp. of America, Control Corp. of America- New England, EESCO and W.R. Controls. Cascade Controls is engaged in the distribution of automation and electrical products for industrial plants and machine and system builders serving Washington, the panhandle of Idaho, and western Montana. Control Corp. of America provides motors, drives, PLCs, sensors, and operator interfaces through turnkey solutions and services to the textile, marine, pharmaceutical, and paper industries. The Control Corp. of America- New England distributes electrical, electronics, and automation products and services to industrial sector in the Northeastern United States. EESCO operations provide automation and control products and general electrical supplies to major industrial, contractor, and institutional customers. W.R. Controls provides complete electrical and lighting control solutions for the retail and commercial markets. The Data Communications business consists of Communications Supply Corp. and TVC Communications subsidiaries. Communications Supply distributes a full range of products to support advanced connectivity for voice and data communication, access control, security surveillance, building automation, video distribution, life safety broadcast systems, and electrical construction and manufacturing for commercial, residential, and government customers. TVC Communications provides products in copper and fiber connectivity, satellite receptions, head end equipment, outside plant, subscriber premise products, test equipment and trade tools, as well as the technical products and services. Its technical support and services include system design and specification, inventory management, logistics programs, on-site product demonstration and training. The Industrial/Construction business operates through the following subsidiaries: Avon Electrical Supplies, Brown Wholesale Electric, Calvert Wire & Cable and Liberty Electrical Supply. Avon Electrical Supplies provides a full line of electrical products, and data communication products to the industrial, construction and commercial markets in the New York metro area. Brown Wholesale Electric distributes electrical supplies, construction materials, and lighting fixtures to contractors and industrial customers. Calvert Wire & Cable is a supplier for wire and cable products to the telecommunications, construction, and manufacturing industries, government and utilities. Liberty Electrical Supply supplies electrical products and services to the construction industry in the New York metro area. Integrated Supply business consists of Bruckner Supply Co., Inc. and WESCO Sourcing and Procurement Services Pte Ltd. Bruckner Supply provides integrated supply procurement and on-site materials management services for large companies in the manufacturing and transportation industries. WESCO Sourcing and Procurement Services delivers indirect services and material supply chain management programs, integrated purchasing, and materials management services to major corporations with global operations. The Industrial/Electrical OEM business consists of Carlton-Bates Co., Fastec Industrial and J-Mark subsidiaries. Carlton-Bates provides electrical OEM products to the electronic and electromechanical industries. Fastec Industrial imports, manufactures and distributes industrial fasteners, cabinet hardware, and locking/latching products. J-Mark provides interior products and components to the manufactured housing industry. The International Operations business operates through the following subsidiaries: WESCO Distribution-Canada, WESCO Distribution-China, WESCO International Operations and WESCO Distribution-Mexico. WESCO Distribution-Canada provides electrical, industrial automation and data communication products to nine provinces. WESCO Distribution-China provides international sourcing services to the growing Asian market. WESCO International Operations serves customers in oil, gas, petrochemical, and other industries around the globe. WESCO Distribution-Mexico serves all of Mexico City and the Federal District and the states of Chihuahua, Mexico, Morelos, and Hidalgo. The Utility business consists of Allied Utility Products, Hamby Young, Herning Enterprises, Inc., Industrial Electric Supply and KVA Supply. Allied Utility Products distributes natural gas and propane products serving the utility and construction markets, in the West, Southwest, and Northwest. Hamby Young supplies high-voltage electrical products and technical services. Herning Enterprises serves utility and telecommunications contractors in large urban areas of California, Washington, Arizona, and Utah. Industrial Electric Supply is a distributor of industrial automation and control products based in Birmingham, Alabama. KVA Supply supplies product solutions to the underground high-voltage utility industry with operations in Denver and Southern California. WESCO International was founded in 1993 and is headquartered in Pittsburgh, PA.
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This article was originally written by abha.dawesar, and posted on CapitalCube.