WESCO International Announces First Ever Dividend, Management Expects Further Growth

After more than 23 years as a listed stock, electrical and equipment manufacturer WESCO International (US:WCC) on March 3 announced the company would be paying its inaugural quarterly dividend, 37.5 cents per share.

That cash dividend will be paid on March 31 to WCC shareholders of record on March 15. If management continues the dividend through the year, that equates to an annualized rate of $1.50 per share, which equates to an annualized dividend yield of 0.9% based on Friday’s $172.69 per share closing price.

The dividend announcement follows a strong fourth quarter and full year report delivered on Feb. 14 which has kept WCC shares trading at all time highs. WCC shares are up a whopping 51% in the past 12 months, versus the S&P 500 index trading 6.5% lower over the same period.

At current levels, Wesco sports a $8.82 billion market capitalization and a price-to-earnings ratio of 11.3, versus the S&P 500’s 21.1, as of Friday, according to Nasdaq data.

WESCO’s CEO and Chairman John Engel said in the announcement that the dividend milestone delivered on the company’s commitment to return more capital to shareholders, including a $1 billion share repurchase and further dividends, announced last year.

“At our 2022 Investor Day, we outlined our five-year expectation for continued sales growth above the market, the benefit of secular trends and ongoing margin expansion resulting in a step-change increase in cash flow generation,” Engel said.

In the final quarter of 2022, Wesco grew sales by 15% to $5.56 billion, beating market expectations of around $5.37 billion.

The group’s underlying profits, as measured by adjusted EBITDA, grew 41% over the year to $451 million and adjusted net income increased by 30.5% to $216.3 million. This equated to adjusted earnings per share of $4.13 for the quarter, a figure that was 8.7% higher than polled analyst forecasts expecting $3.80.

Looking deeper into WCC’s management effectiveness, return on assets (ROA), return on equity (ROE) and return on invested capital (ROIC) have consistently increased over the last three-plus years, as shown in a chart from the Fintel metrics and ratios page for WCC.

The page also highlights that the story is clouded with the cash ROIC and operating cash ROIC only recovering to marginal positive territory this quarter after turning negative over 2022.

The operating cash return on investor capital is a Fintel-created metric that shows the company’s underlying ability to generate cash on an ongoing basis without being manipulated as total cash flows sometimes can be.

For 2023, WESCO expects to generate $600 million to $800 million of free cash flow with underlying EPS of $16.80 to $18.30. Market EPS forecasts for 2023 were for approximately $17 before the announcement implying a better-than-expected outlook.

A chart from Fintel’s forecast page shows analyst forward forecast ranges for the groups EBITDA through to 2028. The Street expects profits to remain steady with slower growth over the next three years before moving higher toward the end of Engel’s five-year growth plan.

Royal Bank of Canada Capital Markets analyst Deane Dray boosted his “outperform” target price to $200 from $163 per share following the bullish result and guidance update.

Dray thinks the company will beat its guidance with the help of its Anixter synergies and multi-year sector tailwinds from continued electrification and grid-hardening. The analyst also highlighted that the valuation continues to remain undemanding relative to peers.

Fintel’s consensus target price of $170.75 suggests the Street is currently seeing the stock as fully valued with a -1.18% projected return based on Friday’s closing price. We at Fintel expect the target to re-rate higher over time as the company will likely revise its full-year guidance higher.

On a EBIT/EV valuation basis, the company is trading at its highest level in three years.

This article originally appeared on Fintel

By Ben Ward