Finding a beaten down industrial stock takes no effort these days, and WESCO (NYSE:WCC)
certainly qualifies. These shares have fallen about 45% over the past
year, surpassing the declines in other distributors like Grainger (NYSE:GWW), Rexel, HD Supply (NASDAQ:HDS), and Anixter (NYSE:AXE).
Given the company's higher exposure to energy, perhaps it is not
entirely unfair that WESCO would see a sharper drop, but I find it
interesting that WESCO is also the only name on that short list that is
expected to see revenue declines in both 2015 and 2016.
The North American industrial sector has weakened a lot
more than I expected back in May of 2015, and that has led me to reduce
my fair value estimate by about 25%. While I do believe that WESCO's
core markets will recover in time, I still have concerns about the
company's long-term margin leverage. Although WESCO is very
efficiently-run from an SG&A perspective, I think gross margin
leverage will likely disappoint the bulls and I don't see what will
shake WESCO out of its long-term status as an average grower. So while
WESCO does look undervalued today and should have more leverage to an
industrial recovery, it wouldn't be first pick for a long-term holding.
Continue here:
WESCO Hammered Down, But Margin Questions Linger
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