Shares of electrical equipment supplier Wesco International (NYSE: WCC) tumbled 23% through 11:40 a.m. ET on Tuesday after the company reported big misses on each sales and earnings this morning.
Heading into earnings day, analysts had forecast that Wesco would report an adjusted profit of $3.87 per share on sales of $5.6 billion. In its place, Wesco reported only $5.5 billion in sales and a profit of just $2.65 per share, adjusted for one-time items.
Wesco International sales and earnings
Sales for the fourth quarter of 2023 declined 2%, a disappointing end to a 12 months through which full-year sales rose 4.5%. Earnings as calculated consistent with generally accepted accounting principles (GAAP) were a bit worse than the adjusted number shown above. GAAP earnings declined 37% 12 months over 12 months to easily $2.45 per share.
On the plus side, as already noted, sales for the 12 months did grow 4.5%. Nonetheless, the steep decline in Q4 profits took its toll on full-year earnings results as well. For all of 2023, Wesco reported a profit of $13.54 per share, down 12% from the $15.33 per share earned last 12 months.
Is Wesco stock a sell?
So Wesco had a nasty quarter. Does this make the stock a sell?
Not necessarily. For one thing, CEO John Engel says the company stays to be riding “long-term secular growth trends” in its end markets, which include utilities, data centers, security, network infrastructure, and industrial markets. For this reason, management thinks sales will resume growing in 2024 — up 1% to 4%. Free money flow (FCF), meanwhile, will go from strength to strength. Wesco generated greater than $400 million in FCF in 2023. In 2024, the company predicts positive money profits of anywhere from $600 million to $800 million this 12 months.
Taken on the midpoint, meaning Wesco stock is selling for lower than 11 times current 12 months free money flow — free money flow that’s predicted to grow 75% this 12 months. Granted, long-term growth forecasts for the company are much lower than that — just 10% annually over the following five years. But to me a minimum of, 11x FCF for a corporation growing even just 10%, and paying a 0.8% dividend, seems a very reasonable price to pay.
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Wealthy Smith has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Wesco International. The Motley Idiot has a disclosure policy.
Why Wesco International Stock Just Crashed 23% was originally published by The Motley Idiot