Wesco International (WCC +1.80%) delivered ugly year-end results and disappointing guidance about 2024 this week, causing investors to head for the exits.
With the stock down 23% for the week as of Thursday afternoon, according to data provided by S&P Global Market Intelligence, it might be time for long-term-focused holders to take a fresh look at this electrical equipment distributor.
A slowdown through the pipeline
Wesco is a well-regarded industrials stock, but its year-end results left a lot to be desired. The company earned $2.65 per share in the fourth quarter on sales of $5.47 billion, well short of the $3.87 per share on sales of $5.59 billion that Wall Street had expected.
Net sales in the quarter were down 2% from a year prior, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin fell 110 basis points.
"The fourth quarter was disappointing as our stock and flow sales were below our expectations and we saw delays in certain projects that were anticipated to ship in December," CEO John Engel said in a statement. "That said, our quoting and bid levels were very healthy during the fourth quarter, with total backlog stable compared to the end of September."
The question is whether "stable" is good enough for investors. Wesco forecast 2024 revenue up just 1% to 4% and set initial 2024 earnings guidance at between $13.75 and $15.75 per share. Wall Street had been expecting about $16.99 per share in 2024 earnings.
NYSE: WCC
Key Data Points
Is it time to buy the dip in Wesco?
The results set off a flurry of downgrades and price target cuts, with RBC Capital analyst Deane Dray moving Wesco to sector perform on what he called an "unsettling" miss. The analyst noted that none of Wesco's peers experienced anything close to the same shortfall, saying the miss "appears far more company-specific than any worrisome new development" for the electrical equipment vendors or the broader industrial sector.
Engel is cautious about 2024, citing uncertainties including the U.S. election cycle, easing inflation, geopolitical upheaval, and interest rates as potential variables. But the CEO is much more upbeat when looking past the next few quarters, saying, "The long-term secular growth trends that we have consistently described will continue to provide Wesco with the opportunity to outperform the market and our competition."
The company, thanks to its 2020 acquisition of Anixter, is the biggest in its industry, and has exposure to growth trends including renewable energy, construction, and infrastructure development.
Wesco has a great long-term track record, but the nature of this miss was troubling. There is enough of a history here to believe Wesco will be fine, and that the stock is a buy at these levels. But those taking the plunge should do so cautiously, and keep a close eye on how the next few quarters go for Wesco.
