A Wesco Aircraft Holdings, Inc. (NYSE: WAIR) insider bought $2.2 million worth of stock on Friday. This transaction is notable when considering all recent insider activity, the company’s earnings beat, and the stock’s low valuation.
Insider Buying: Wesco Aircraft
Thomas Bancroft, a current board member and 10% owner through Makaira Partners LLC, bought 550,000 shares of Wesco Aircraft worth a total of $4.8 million over the last three trading days.
|Insider Trading||Relationship||Date||#Shares||Value ($)|
|Makaira Partners LLC||10% Owner||Feb 14||250,000||$2,179,025|
|Makaira Partners LLC||10% Owner||Feb 15||100,000||$882,500|
|Makaira Partners LLC||10% Owner||Feb 16||200,000||$1,778,960|
What's more interesting in fact, Makaira Partners has bought $23.3 million worth of stock since the beginning of May of last year according to recent SEC filings. That's roughly 2.6% of the company's total market capitalization.
The investment management firm now owns roughly 11% of the total shares outstanding. The only larger shareholder is The Carlyle Group which has an ownership stake of 23% of Wesco Aircraft.
Why Are Insiders Buying Shares?
Wesco Aircraft distributes aerospace products and provides supply chain management services to the aerospace industry worldwide. Analysts covering the stock often compare the company to a peer group that includes Heico (NYSE: HEI), Esterline Technologies (NYSE: ESL), Transdigm Group (NYSE: TDG) and Hexcel (NYSE: HXL). Analyzing Wesco Aircraft's valuation metrics and ratios relative to its peer group offers insight into why Mr. Bancroft buying shares.
Projected 5-year EBITDA CAGR is the average annual growth rate of EBITDA over a five year period. It's calculated as follows:
5yr CAGR = [ EBITDA FY+5 / EBITDA FY ] ^ (1/5 years) - 1.
The chart below plots the five year EBITDA compounded annual growth rate for Wesco Aircraft and its peers.
The company's projected 5-year EBITDA CAGR of 6.2% is above its selected comparable public companies: HEI (5.8%), ESL (3.9%), TDG (5.7%) and only below HXL (7.1%).
A company's EBITDA multiple is calculated by dividing its Enterprise Value by EBITDA and is often used to benchmark the fair market value of a company. Companies that are expected to grow at a faster rate typically trade at higher EBITDA multiples. However, this doesn't appear to be the case for Wesco Aircraft as shown below.
Wesco Aircraft's forward EBITDA multiple of 11.5x only trades above ESL (9.0x) and below HEI (21.3x), TDG (14.5x) and HXL (13.4x).
The fundamental charts above indicate that the company's stock may be trading at a discount relative to its peers which may be a reason why Makaira Partners is adding shares.
Wesco Aircraft's Stock Price and Valuation
The company's shares last traded at $8.90 as of Friday, down -27.9% of the last year but up 10.6% in the last three months. While shares have lost significant value in the last 12 months, could the recent increase along with the insider activity signal that the stock has hit its bottom?
Furthermore, management reported Q1'18 sales and earnings on February 8th that easily beat analyst estimates. Wesco Aircraft's stock price jumped following the news.
Finbox.io applies pre-built valuation models to calculate a fair value for a given stock and uses consensus Wall Street estimates for the forecast when available. The company's average fair value of $10.19 implies 14.5% upside and is calculated from 4 separate analyses as shown in the table above.
|Analysis||Model Fair Value||Upside (Downside)|
|Peer EBITDA Multiples||$9.86||10.8%|
|10-yr DCF Growth Exit||$11.12||24.9%|
|5-yr DCF Growth Exit||$9.78||9.9%|
|Earnings Power Value||$10.01||12.5%|
While insider activity on its own is not necessarily a buy or sell signal, it may offer insight into how ownership and management feel about a company's future prospects. Keeping an eye on the activities of insiders and institutions can help investors make more informed investment decisions.
I recommend you continue to research Wesco Aircraft to get a more comprehensive view of the company by looking at:
Valuation: what is Wesco Aircraft's price to book ratio and how does it compare to its peers? Analyze Price / Book here.
Risk Metrics: what is Wesco Aircraft's CapEx coverage? This is the amount a company outlays for capital assets for each dollar it generates from those investments. View the company's CapEx coverage here.
Forecast: what is Wesco Aircraft's projected EBITDA margin? Is the company expected to improve its profitability going forward? Analyze the company's projected EBITDA margin here.
Article by Brian Dentino, Finbox.io