Wesco Earnings: Near-Term Electrical and Electronic Solutions Headwinds Don’t Deter Undervalued Call

We elected to raise our fair value estimate by 3% to $197 (from $191 previously), following third-quarter earnings. The increase to our fair value estimate is largely attributed to the time value of money since our last update, but was partially offset by slight tweaks to our near-term sales expectations.

Management tightened up its 2023 guidance, which led us to lower our sales estimate for the year. Last quarter, the company was expecting 5%-7% reported sales in 2023 but has since lowered this to 5%. Our revised estimate now matches management’s guidance. We had previously expected sales to grow by over 6%.

The key callout in the quarter was continued weakness in the electrical and electronic solutions business, which has been challenged by customer destocking. Management pointed to weakness in commercial construction. For example, growth in large project shipments were offset by declining wire and cable revenue due to shorter lead times, which pushed customers to hold off on purchases. Furthermore, the OEM vertical was down a high-single-digit percentage, as sales of manufactured structures struggled.

Wesco WCC maintained guidance of midteens sales growth for the communications and security solutions business, while lowering its sales expectation for the utility and broadband solutions business to a high-single-digit percentage. We slightly tweaked our sales numbers down for both segments.

Nonetheless, the company still posted a solid quarter. Sales were up 3% on an organic basis, helped by market growth and share gains. Wesco also continues to benefit from its cross-selling efforts, with Anixter now in the fold. Management raised its cross-sell target by $200 million to $2.2 billion. Wesco shared that approximately $2 billion in cross-sell revenue has been realized to date. On the cost synergy front, Wesco has realized roughly 74% of its $315 million annual run-rate target. The Anixter combination continues to track well.