Update: Wesco Aircraft Holdings Even More Attractive Valuation

Aug.14.14 | About: Wesco Aircraft (WAIR)


The market's short-term nature has sent shares in this high quality business further down.

It will take time for the integration of Haas to bear fruit.

Tom Bancroft's Makaira Partners continues to purchase shares and holds Wesco as one of their largest positions at ~16.5% of fund as of the end of last quarter.

Wesco Aircraft Holdings (NYSE:WAIR) revenues grew in the last quarter by 72% to $395 million, yet adjusted net income only grew by 9%. Adjusted EBITDA was $63.2 million and as we mentioned in our previous article it is likely to grow significantly more as Haas' chemical supply chain management services division is likely to continue to grow at a healthy rate.

Management's expectations were not met and of course the market was displeased by sending shares down to $17. Management expects to now only achieve $1.35 billion for the year and at the going 16% adjusted EBITDA margin rate, the company would only produce $216 million. With an enterprise value of $2.76 billion the EV/EBITDA of the full year would be 12.7x. Those individuals with a much larger time horizon than the market could benefit from time arbitrage as Wesco is still likely capable of driving large efficiencies from Haas' lower margin rate and further growth ability.

We think a good indicator of the valuation of Wesco can be found from looking at Tom Bancroft's activity at Makaira Partners. As of the end of last quarter, Makaira Partners increased its position in Wesco by 12% and has likely been adding further as the share price has decreased. Remember, Bancroft is the manager that Todd Combs, co-CIO at Berkshire Hathaway, would hire to partner with.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is meant for instructional purposes and not meant as a recommendation to buy or sell. The only kind of intelligent investing is through your own due diligence.