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Houston Wire And Cable - Cheap Value

May 08, 2015 7:21 AM ETHWCC
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Summary

  • Most major indexes are at or near all time highs.
  • Reasonably priced stocks are increasingly hard to find.
  • Houston Wire and Cable Company (HWCC) is priced below value and offers a significant dividend yield.

Houston Wire and Cable (HWCC) founded in 1975, is one of the largest providers of electrical and mechanical wire and cable, hardware and related services to the U.S. market. The company has positioned itself in the supply chain between wire and cable manufacturers and the end customer. In addition to providing a greater breadth and depth of inventory than any single manufacturer, it offers value added services such as custom cutting, cable coiling and custom slings and harnesses. It also provides efficient just-in-time product management cable management large capital projects.

The company is headquartered in Houston with 22 distribution facilities located throughout the US. The company served approximately 6,300 customers in 2014, and no customer represented 10% or more of its 2014 sales. The company's top five suppliers in 2014 were Belden Inc., General Cable Corporation, Lake Cable LLC, Nexans Energy USA, Inc. and Southwire Company.

Houston Wire and Cable's products are used in repair and replacement work, and related projects, larger-scale projects in the utility, industrial and infrastructure markets and a diverse range of industrial applications including communications, energy, engineering and construction, general manufacturing, marine construction and marine transportation, mining, construction, infrastructure, oilfield services, petrochemical, transportation, utility, and wastewater treatment.

The company currently has about $54m in debt. Most of the debt can be attributed to money borrowed for an acquisition the company made in 2010. One notable feature of the company's balance sheet is that over the past 5 years it has had little or no cash and cash equivalents. Given the current low returns on cash, this could be considered a positive. The company has returned cash to shareholders in the form of dividends and stock repurchases or reinvested in the business itself. The company has paid a quarterly cash dividend since August 2007. Over the past 4 years return on invested capital has stayed above 10%. The negative aspect of having no cash on hand is that any sudden unanticipated need for cash will result in the company incurring more debt.

Over the last 4 years the company's revenues have stayed in the $380-$400m range. During the same time frame the operating margin as a percentage of revenue has stayed above ~ 7%. A conservative DCF analysis gives the stock a value of $11-$12 per share. The shares are currently trading at $9 and change. For the year ended December 31, 2014, cash dividends were $0.47 per share for a yield of ~ 4.9%.

The company estimates that approximately one-third of its sales are to the oil and gas markets - this could be a reason for the recent decline in its share price. Spending in the company's other end markets is projected to increase in low single digit percentage in 2015. This should allow the company to maintain and possibly increase its value in the years to come.

Analyst's Disclosure: The author is short HWCC.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

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