WESCO International Stock Shows Every Sign Of Being Fairly Valued

GuruFocus.com
·4 min read

- By GF Value

The stock of WESCO International (NYSE:WCC, 30-year Financials) gives every indication of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $87.04 per share and the market cap of $4.4 billion, WESCO International stock is estimated to be fairly valued. GF Value for WESCO International is shown in the chart below.


WESCO International Stock Shows Every Sign Of Being Fairly Valued
WESCO International Stock Shows Every Sign Of Being Fairly Valued

Because WESCO International is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 18.5% over the past three years and is estimated to grow 13.20% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. WESCO International has a cash-to-debt ratio of 0.09, which is worse than 89% of the companies in Industrial Distribution industry. GuruFocus ranks the overall financial strength of WESCO International at 4 out of 10, which indicates that the financial strength of WESCO International is poor. This is the debt and cash of WESCO International over the past years:

WESCO International Stock Shows Every Sign Of Being Fairly Valued
WESCO International Stock Shows Every Sign Of Being Fairly Valued

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. WESCO International has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $12.3 billion and earnings of $1.4 a share. Its operating margin is 2.82%, which ranks in the middle range of the companies in Industrial Distribution industry. Overall, the profitability of WESCO International is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of WESCO International over the past years:

WESCO International Stock Shows Every Sign Of Being Fairly Valued
WESCO International Stock Shows Every Sign Of Being Fairly Valued

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. WESCO International's 3-year average revenue growth rate is better than 91% of the companies in Industrial Distribution industry. WESCO International's 3-year average EBITDA growth rate is 8.3%, which ranks in the middle range of the companies in Industrial Distribution industry.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, WESCO International's ROIC was 3.84, while its WACC came in at 11.86. The historical ROIC vs WACC comparison of WESCO International is shown below:

WESCO International Stock Shows Every Sign Of Being Fairly Valued
WESCO International Stock Shows Every Sign Of Being Fairly Valued

Overall, the stock of WESCO International (NYSE:WCC, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Industrial Distribution industry. To learn more about WESCO International stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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