A Financial Analysis of WESCO International Incorporated

After a tremendous rally in terms of share price over the past few years and a recent initiation to outperform the market from Wachovia, WESCO International (WCC) has sparked many investors? interests in the form of potential capital gains. While the stock price, after such a rally, may seem high and overbought to many investors, after examining both the charts and fundamentals of WESCO, I believe there is still much optimism to be regarded upon when balancing your options of buying or not.

Located in Pittsburgh Pennsylvania, WESCO International, part of the electronics wholesale industry and service sector, provides ?electrical supplies, such as wiring devices, fuses, and terminals? as well as ?industrial supplies, including tools and testers, personal protection, and consumables (Yahoo! Finance).? While basic in nature, all such products are heavily required for everyday activities, regardless of complexity, and barring a strong innovated revolution in such an industry, the supplies WESCO produces will continue to have a strong importance for its consumers. Saying this, many investors may argue that a multiple of companies supply the same products, and those same competitors even have stronger fundamentals in some cases. While such a claim is valid, looking more closely at the basic idea of what a company does, a corporation like WW Grainger or Arrow Electronics, while producing similar products, does not have the same global impact that WESCO International has. Since, the global market in both the emerging markets such as India and China and the relatively developed nations such as found in Europe, are growing, economically, even more rapidly when juxtaposed to the United States, a strong argument can be made for such multinational corporations. With liquidity flowing from new jobs and growing discretionary income, while it may be true that WESCO supplies inelastic products, there still will be a strong regard for higher prices for such normal goods, and consumers, especially businesses, will be less reluctant to purchase these goods relative to as recent as three years ago. As such is the case, while Grainger or Arrow may have a nice market share in terms of the electronic wholesale industry in America, I foresee a global corporation, such as WESCO, will have a more dramatic effect on its fundamentals in the future.

While future growth is desirable for current and potential shareholders, it is not to say that WESCO does not already produce strong fundamentals. Examining the top line, revenue growth has been excellent, growing 18% over the past year which is a strong percentage growth compared to competitor Arrow Electronics? 5% revenue growth. Consequently, gross margins have increased modestly, which has produced a 4% net profit growth and a 7% operating income growth over the past twelve months compared to Arrow?s 3% and 5% respective growth rates. In addition, while the current ratio or debt to equity ratio may be negatively favored juxtaposed to competitors such as Arrow or Grainger, WESCO is still a relatively new company and will need to take some time to accrue more growing assets relative to liabilities. Furthermore, out of the three mentioned corporations, WESCO has the smallest PEG ratio, and while Arrow Electronics does have a slight edge with a lower forward and trailing P/E ratio compared to WESCO, I suspect, because of WESCO?s global influence, such statistic will be negligible this time next year. The one area that does concern me would be the negative leveraged free cash flow, but nevertheless, operating cash flow still remains high, and both the EBITDA and EBIT, proxies of cash flow, have been growing at substantial margins over the past few years. Therefore, after examining such fundamentals, while WESCO does not have a complete domination over its competitors regarding the numbers, because of its rival?s lack of global influence, already having a fairly strong pull in many of these categories can only be beneficial to where WESCO will aim for in the long run.

When looking at a five year chart of WESCO?s share price performance, many investors will be surprised at the run this company had from April of 2003 to April of 2006. During this three year time period, the share price of WESCO rose in dramatic fashion, yielding a gain of almost 2000% to lucky investors. As the share price has retracted from such highs to a more modest 60 dollars per share, some investors may believe that this company has reached its high and is on the verge of a declination. Nevertheless, taking a more detailed approach when examining the charts, I believe there is good indication to tell that WESCO may be on the spurt of an upside rally in the coming months. Looking at a one month chart of the share price of WESCO, it is evident that after the 80 dollar peak in April, some stalemate occurred the following months as WESCO fluctuated in a short resistance and support level. However, I noticed one significant change during October which should indicate a strong resurgence in share price. In early October there were two successive days with high volume when the share price rose both these days. In addition to such finding, in mid-October, there was another indication illustrating strong volume but only a modest decline in share price. Such would let me believe that investors, both retail and institutional, were more bullish on WESCO?s upside than bearish for this company. In addition, since WESCO recently fell on unusually small volume over the last week, now may be a perfect opportunity to maximize your capital gains by investing at a price below 60. If such a process is accomplished, there will be a strong case to be made regarding large capital gains earned for shareholders of this company.

Thus, after reviewing the fundamentals and charts of this company, because of its global presence in relation to its competitors, I would strongly argue to purchase shares of WESCO to earn capital gains. It may be true that WESCO has hit a stoppage point after its three year incredible rally, but after reviewing the necessarily indicators, I believe there is still a strong upside for this company.

Dennis Biray presents advice on all kinds of topics ranging from finance and investing to fitness to sports. For more information email him at dbiray@gmail.com, or to view other articles written by him visit http://www.biraynetworks.co.nr