Houston Wire & Cable Has Room To Double Revenue By Scaling Up U.S. Operations

Houston Wire & Cable Company (HWCC) is an undervalued small-cap growth stock that offers strong long-term upside potential to double the stock price in ten years while paying further ~40% in dividends for a ~14% total annualized return. This long-term upside potential far outweighs the ~55% worst-case downside risk in the case of bankruptcy, providing for a very attractive risk-to-reward scenario. Moreover, while the company continues to overcome short-term headwinds caused by falling copper prices and slowly improving cable & wire market, long-term dividend growth investors will be paid to wait for this stock to appreciate over the years by raking in a high 3.32% dividend yield on a more than sustainable 40% payout ratio.

Company background

Founded four decades ago, Houston Wire & Cable Company has doubled its sales since 2006 to become one of the largest U.S. distributors of electrical and mechanical wire and cable products and services through twenty-one locations in thirteen states throughout the U.S. and more than 43,000 products stocked. The company's primary end markets include industrials (mainly oil and gas), power generation and infrastructure. Houston Wire also provides comprehensive, value-added services including standard, same-day shipping from an extensive inventory and distribution network, application engineering support, custom cutting of wire & cable to exact specifications as well as just-in-time delivery, job-site delivery and logistics support and internet ordering. The company went through an IPO in 2006. HWCC raised its dividend by 20% this year after many quarters of stable dividend payments and consistently delivered high returns on equity and the ever-increasing shareholder value.

Investment thesis

Since rapid sales growth as a result of two acquisitions in 2010, the top line growth has been much more muted and the P/E multiples have dropped to attractive 12x forward earnings levels to reflect this weak top line growth. Nevertheless, according to my analysis, HWCC has room to triple its U.S. sales within ten years through organic and acquisition-driven regional expansion. The growth will primarily be driven by the opportunity to scale up its business model and coverage from just 13 U.S. states to encompass all of the U.S. HWCC's strongest competitors already cover most of the U.S. and they have virtually no room for growth within the country and have to look into non-core, foreign markets, while HWCC can still grow within the U.S. while remaining a pure play on the U.S. wire & cable market. Furthermore, HWCC is one of the few large, pure-play U.S. wire & cable distributors that are publicly traded, thus available to regular investors.


2013/09/26 09:50:03 Source：seekingalpha

You are not allowed to view links. Register or Login