On Tuesday, WESCO International (NYSE:WCC) experienced a downgrade by RBC (TSX:RY) Capital from Outperform to Sector Perform, with a revised price target set to $173 from the previous $202. The decision was prompted by several key factors including a significant fourth-quarter operating miss and disappointing free cash flow conversion, which was reported at 39% compared to the average 98% in the same quarter.
The company's start to the year also raised concerns, with January seeing a 5% decline in organic sales. Additionally, WESCO's earnings per share (EPS) guidance for 2024 was notably weaker than expected, with the midpoint falling 13.5% below consensus at $2.30. The electrical distributor attributed these results to various challenges, such as short-cycle stock and flow sales, year-end project timing, continued weakness in the broadband sector, and certain areas of original equipment and construction lagging.
Despite these setbacks, the impact on the broader market appears to be contained. WESCO's primary electrical suppliers have generally reported positive results, with an average organic revenue growth of around 7% for the quarter. This suggests that the issues leading to WESCO's downgrade may be more company-specific rather than indicative of a wider industry trend.
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