Watsco (WSO) AI Stock Analysis

• Market Cap: $20.41B
• Dividend Yield: 2.07%
• Average Volume (3M): 300.95K
• Price to Earnings (P/E): 39.1
• Beta (1Y): 1.44
• Revenue Growth: 4.59%
• EPS Growth: -2.05%
• Country: US
• Employees: 7,425
• Sector: Industrials
• Sector Strength: 72
• Industry: Industrial Equipment Distributors
• EPS (TTM): 13.27
• Shares Outstanding: 34,803,110
• 10 Day Avg. Volume: 332,592
• 30 Day Avg. Volume: 300,954
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): 2.76
• Price to Cash Flow (P/CF): 13.90
• P/FCF Ratio: 13.70
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $507.50
• Price Target Upside: 0.40% Upside
• Rating Consensus: Hold
• Number of Analyst Covering: 6

Watsco's strong financial performance, driven by robust revenue growth and cash flow generation, positions it well for future growth. The positive earnings call highlights record sales and strategic initiatives. However, a high P/E ratio suggests potential overvaluation, and challenges remain in non-equipment sales and the A2L product transition.

Positive Factors

Market Share

WSO displays a more defensive business model vs the OEMs and has solidified a #1 market share in the fragmented HVAC distribution space.

Product Transition

A2L transition providing an opportunity to reprice and go to market with ~60% new products over the next 12 months.

Negative Factors

Financial Performance

Shares traded -4% as 3Q24 revenue/gross margin missed expectations.

Watsco Business Overview & Revenue Model

Company Description

Watsco, Inc. (WSO) is a leading distributor of heating, ventilation, air conditioning, and refrigeration (HVAC/R) equipment and related parts and supplies in North America. The company operates in sectors including residential and commercial HVAC/R markets, offering a wide range of products such as air conditioners, furnaces, ductwork, thermostats, and refrigeration systems. Watsco serves a diverse customer base, including contractors, dealers, and other service providers, through its extensive network of locations across the United States, Canada, Mexico, and the Caribbean.

How the Company Makes Money

Watsco makes money primarily through the distribution and sale of HVAC/R equipment and related parts. The company generates revenue by purchasing products from manufacturers and selling them to contractors and dealers at a markup. This business model is supported by Watsco's extensive distribution network, which allows it to efficiently deliver products to a wide range of customers. Key revenue streams include the sale of air conditioning and heating equipment, replacement parts, and other related supplies. Additionally, Watsco benefits from strategic partnerships with leading HVAC/R manufacturers, which enable it to offer a broad range of products and maintain competitive pricing. The company's earnings are also influenced by factors such as seasonal demand, construction activity, and energy efficiency trends, which drive the need for new installations and upgrades of HVAC/R systems.

Watsco Financial Statement Overview

Summary

Watsco demonstrates a solid financial performance with strong revenue growth, effective cost management, and a robust balance sheet. The company maintains low leverage and generates strong cash flows. Despite some pressure on net income, Watsco's financial health remains strong, supporting future growth.

Income Statement

Watsco shows strong revenue growth with a CAGR of approximately 8.5% from 2019 to 2024. The company maintains healthy profit margins, with a gross profit margin around 27% and a net profit margin around 7%. EBIT and EBITDA margins are stable, indicating effective cost management and operational efficiency. However, a slight decline in net income from 2022 to 2024 suggests potential pressure on profitability.

Balance Sheet

Watsco's balance sheet is robust with a low debt-to-equity ratio consistently below 0.2, reflecting strong financial leverage management. The equity ratio remains above 50%, indicating a solid capital structure. Return on Equity (ROE) is stable, around 20%, denoting efficient shareholder returns. The increase in stockholders' equity over the years underscores sustainable growth, but there is a notable increase in total liabilities from 2023 to 2024.

Cash Flow

The company has consistently generated strong operating cash flows, with a significant increase from 2019 to 2024. The free cash flow growth is impressive, highlighting effective capital management. The operating cash flow to net income ratio is consistently above 1, indicating efficient cash flow conversion. While free cash flow to net income ratios are equally strong, reflecting robust cash generation relative to profits.

Breakdown
Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement		Total Revenue
7.62B	7.28B	7.27B	6.28B	5.05B
	Gross Profit
2.04B	1.99B	2.03B	1.67B	1.22B
	EBIT
781.77M	771.42M	831.58M	628.53M	401.03M
	EBITDA
792.10M	829.90M	863.26M	656.65M	426.94M
	Net Income Common Stockholders
536.29M	536.34M	601.17M	418.94M	269.58M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
781.94M	210.11M	147.50M	118.27M	146.07M
	Total Assets
4.48B	3.73B	3.49B	3.09B	2.50B
	Total Debt
447.46M	404.79M	379.14M	360.52M	211.33M
	Net Debt
-78.81M	194.68M	231.64M	242.26M	65.26M
	Total Liabilities
1.42B	1.11B	1.24B	1.09B	717.16M
	Stockholders Equity
2.66B	2.23B	1.89B	1.66B	1.49B
Cash Flow		Free Cash Flow
773.10M	526.48M	538.17M	325.46M	518.04M
	Operating Cash Flow
773.10M	561.95M	571.96M	349.57M	534.38M
	Investing Cash Flow
-290.67M	-41.34M	-33.84M	-148.58M	-16.34M
	Financing Cash Flow
-158.53M	-460.08M	-503.96M	-249.62M	-448.49M

Watsco Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 505.49
• 50DMA: Positive
• 100DMA: Positive
• 200DMA: Positive
• MACD: Negative
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For WSO, the sentiment is Positive. The current price of 505.49 is above the 20-day moving average (MA) of 498.98, above the 50-day MA of 487.07, and above the 200-day MA of 485.87, indicating a bullish trend. The MACD of 5.35 indicates Negative momentum. The RSI at 53.77 is Neutral, neither overbought nor oversold. The STOCH value of 69.38 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for WSO.

Watsco Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
WSO	78 Outperform	$20.41B	39.13	20.39%	2.07%	4.59%	-2.05%
EME	77 Outperform	$16.94B	16.79	37.25%	0.28%	15.76%	61.64%
JCI	75 Outperform	$51.44B	30.57	9.80%	1.90%	-4.53%	-14.72%
FIX	71 Outperform	$11.14B	22.20	35.03%	0.38%	34.97%	62.08%
LII	69 Neutral	$20.14B	26.83	142.12%	0.75%	7.21%	36.45%
Sector *	62 Neutral	$8.16B	12.85	0.64%	3.04%	3.83%	-15.83%
AAON	61 Neutral	$6.72B	39.59	21.61%	0.53%	2.75%	-5.43%

Watsco Corporate Events

Watsco Increases Annual Dividend Amid Strong Financials

On February 18, 2025, Watsco announced an 11% increase in its annual dividend to $12.00 per share, highlighting its strong financial performance in the fourth quarter of 2024. The company reported a 9% increase in sales to a record $1.75 billion, expanded margins, and record cash flow. Watsco’s strategic investment in digital platforms has driven higher sales growth and customer acquisition, positioning it well for future growth in the $74 billion HVAC/R distribution market. The company’s leadership is optimistic about continued growth, driven by technology adoption and a transition to A2L products.