On Tuesday, Jefferies maintained a positive outlook on WESCO International (NYSE:WCC), raising the price target to $185 from $165, while reiterating a Buy rating on the stock. The firm highlighted that WESCO's sales growth trends align with those of comparable electrical distributors, despite facing headwinds from the depletion of safety stock by end customers, particularly in CIG markets.
WESCO's stock has seen a significant increase, rising 19% since experiencing a notable drop after fourth-quarter earnings. Jefferies suggests that improvements in working capital management, such as better inventory turns or receivable turnover, could potentially add between $500 million and $700 million to WESCO's free cash flow.
The analyst expressed optimism that the company's 2024 earnings per share (EPS) forecast of $14.25, which is within the guidance range of $13.75 to $15.75, might be on the conservative side. WESCO's current trading metrics, including a price-to-earnings (P/E) ratio of 11.1 and an enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 7.3, are noted as falling within historical ranges of 7-20x and 6-12x, respectively.
The new price target of $185 is based on an EV/EBITDA multiple of approximately 8x. However, the firm also pointed out that if WESCO can accelerate sales growth to mid-single digits and improve margins, there could be further upside potential to an EV/EBITDA multiple of around 10x, or a price target of $300.
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