We like to take a deep dive into a company's numbers to arrive at a fair value estimate for each firm based on a rigorous discounted cash-flow valuation process (click here for more information on our DCF process). We also like to take an industry perspective in order to determine which stocks within a given industry are trading at a valuation discount relative to each other.
We provide below the results from our DCF valuation--the first step in our process--for stocks in the Industrial Distributors industry covered by our analyst team. For each company, we provide 13 investment considerations and a graphical depiction of the key value drives, as well as an in-depth forecast summary.
We think Anixter (AXE) and Wesco (WCC) are significantly undervalued on the basis of our DCF process -- both are also attractive on a relative value basis. Fastenal (FAST), on the other hand, appears overvalued, while MSC Industrial (MSM) and Grainger (GWW) appear fairly valued. We are considering adding Anixter and Wesco to our Best Ideas list in the event their respective scores on our Valuentum Buying Index warrant such a position. The graphs below depict our views on each stock based on our DCF process -- if a firm's fair value is significantly above its share price, we'd consider it to be undervalued.
Fair Value: $71 per share
We think Anixter is undervalued on both a DCF process and relative value basis. Only our evaluation of its technicals is holding the firm back from garnering one of the higher scores on our Valuentum Buying Index.
click to enlarge
Fair Value: $24 per share
Fastenal is a much-loved company, but we view it as overvalued on both a DCF basis and a relative value basis. We'd steer clear of the firm's shares.
MSC Industrial (MSM)
Fair Value: $56 per share
We think MSC Industrial is fairly valued on a DCF basis and unattractive on a relative value basis. We'd remain on the sidelines for now.
W. W. Grainger (GWW)
Fair Value: $129 per share
We think Grainger is fairly valued on a DCF basis and unattractive on a relative value basis. We're not compelled to pick up Grainger's shares anytime soon.
Fair Value: $58 per share
We think Wesco is undervalued on both a DCF process and relative value basis. Only our evaluation of its technicals is holding the firm back from garnering one of the higher scores on our Valuentum Buying Index.