On Friday, Oppenheimer adjusted its outlook on WESCO International (NYSE: WCC) shares, increasing the price target to $225 from $205 while maintaining an Outperform rating. The firm attributed the revised target to the company's Data Communications Supply Solutions (DCSS) segment, which delivered robust sales and a significant sequential operating leverage.
The analyst highlighted that the operating earnings per share (EPS) benefit was driven by the DCSS segment, which experienced a substantial sales beat and a 28% sequential operating leverage. Margins that were previously under pressure in the first half of the year have now moderated, supported by costs that are in place to back the escalating organic growth.
WESCO's DCSS segment has seen growth of over 40%, with the company now expecting growth to exceed 20% compared to the high teens percentage previously forecasted. Despite a lighter first quarter, the fourth quarter is projected to remain strong with double-digit growth.
WESCO's DCSS accounts for approximately one-fourth of the company's Cable and Security Solutions (CSS) segment, and its growth has been broad-based across various markets, including hyperscale, multi-tenant data centers (MTDC), and enterprise data centers. This expansion has been anchored by the acquisition of RAHI, a strategic move that has contributed to the company's traction.
After the market closed, WESCO announced an agreement to acquire Ascent for $185 million. Ascent is a provider of data center facility management services, addressing operational and infrastructure needs, and has reported trailing twelve months (TTM) sales of $115 million along with a 30% compound annual growth rate (CAGR) over three years.
While the Utility and Broadband Supply (UBS) sales have remained under some pressure, coming in slightly below estimates due to continued destocking, the analyst anticipates a resolution aligning with healthy end-market trends by the second quarter of 2025.
In other recent news, WESCO International, Inc. announced steady growth in its data center business during its 2024 Third Quarter Earnings Call. The company reported a slight uptick in sales over the previous quarter, largely attributed to a robust 10% increase in its data center segment. However, challenges in the utility and broadband sectors curtailed overall organic growth.
WESCO maintained a stable adjusted EBITDA margin and reported a strong free cash flow of $280 million for the quarter. The company also reaffirmed its full-year 2024 outlook, anticipating significant free cash flow generation over the next three years, with an emphasis on value-accretive mergers and acquisitions.
Despite a slowdown in certain sectors, the company secured large contract awards ranging from $50 million to over $2 billion. These recent developments underscore WESCO's strategic focus on long-term growth, particularly through data center expansion and strategic mergers and acquisitions.
InvestingPro Insights
WESCO International's recent performance and strategic moves align with several InvestingPro metrics and tips. The company's market cap stands at $9.44 billion, reflecting its significant presence in the Trading Companies & Distributors industry. WESCO's P/E ratio of 14.27 suggests a relatively attractive valuation, especially considering its strong recent performance.
InvestingPro Tips highlight that WESCO has been aggressively buying back shares and offers a high shareholder yield, which aligns with the company's robust financial position and growth strategies. The stock's significant return over the last week (9.06%) and strong return over the last month (15.32%) corroborate Oppenheimer's positive outlook and increased price target.
The company's profitability is underscored by its LTM revenue of $21.95 billion and an EBITDA of $1.50 billion. While revenue growth has slightly declined (-1.46% LTM), the strong performance in the DCSS segment and the acquisition of Ascent suggest potential for future growth.
For investors seeking more comprehensive analysis, InvestingPro offers 13 additional tips for WESCO International, providing deeper insights into the company's financial health and market position.
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