Watsco (WSO) AI Stock Analysis

• Market Cap: $15.56B
• Dividend Yield: 3.38%
• Average Volume (3M): 376.10K
• Price to Earnings (P/E): 25.7
• Beta (1Y): 1.04
• Revenue Growth: -0.71%
• EPS Growth: -0.17%
• Country: US
• Employees: 7,220
• Sector: Industrials
• Sector Strength: 72
• Industry: Industrial - Distribution
• EPS (TTM): 1.68
• Shares Outstanding: 34,944,443
• 10 Day Avg. Volume: 310,717
• 30 Day Avg. Volume: 376,100
• PEG Ratio: -3.14
• Price to Book (P/B): 4.59
• Price to Sales (P/S): 1.76
• P/FCF Ratio: 23.85
• Enterprise Value/Market Cap: 1.00
• Enterprise Value/Revenue: 2.14
• Enterprise Value/Gross Profit: 7.53
• Enterprise Value/Ebitda: 20.16
• 1Y Price Target: $391.25
• Price Target Upside: 2.12% Upside
• Rating Consensus: Hold
• Number of Analyst Covering: 6
• EPS Forecast (FY): 12.64
• Revenue Forecast (FY): $7.38B

• Rating: 77 Outperform
• Price Target: $425.00 ▲(10.93% Upside)
• Action: Reiterated Date: 02/18/26
• Date: Action: Reiterated 02/18/26

The score is driven primarily by strong financial quality (conservative leverage and robust free-cash-flow generation) and constructive technical momentum. This is tempered by a relatively expensive valuation (P/E ~32.6) and earnings-call commentary pointing to ongoing near-term volume and sales softness despite margin improvement initiatives.

Positive Factors

Balance Sheet Strength

Watsco's very low and improving leverage (debt-to-equity ~0.11 and debt-free in 2025) provides durable financial flexibility. It reduces refinancing and liquidity risk, supports sustained dividend increases and M&A, and lets management invest through downturns without materially raising funding costs.

Robust Cash Generation

Consistent free cash flow (FCF up ~10% in 2025; record Q4 cash flow $400M) underpins lasting capital allocation capacity. Strong cash generation funds the long dividend streak, disciplined acquisitions, inventory improvement and reinvestment without adding leverage, enhancing long-term resilience.

Digital & Platform Adoption

Significant digital penetration (35% e-commerce, OnCallAir $1.8B run rate, app users +15%) represents a structural shift in contractor purchasing. Higher digital mix can lower transaction costs, improve retention, increase recurring parts sales and build a scalable distribution moat versus smaller local competitors.

Negative Factors

Equipment Unit Volatility

A ~17% drop in unit volumes highlights structural sensitivity to replacement cycles and OEM channel variability. Equipment sales are the largest-ticket category; sustained volume weakness erodes revenue and gross profit, pressures fixed-cost absorption, and can compress margins over several quarters.

Aftermarket / Replacement Softness

Aftermarket and replacement sales are typically steadier, higher-margin cash flows; a ~6% decline reduces recurring revenue stability and margin durability. Prolonged softness increases reliance on lumpy equipment sales to meet cash targets and makes near-term margin recovery harder to sustain.

Commercial & International Weakness

Weakness in commercial and international end markets (~9% aggregate soft quarter; Latin America lagging) diminishes geographic and end-market diversification. If persistent, it limits the firm's ability to offset U.S. residential cycles and slows consolidated revenue recovery and margin improvement.

Watsco Business Overview & Revenue Model

Company Description

Watsco, Inc., together with its subsidiaries, distributes air conditioning, heating, refrigeration equipment, and related parts and supplies. The company distributes equipment comprising residential ducted and ductless air conditioners, such as gas, electric, and oil furnaces; commercial air conditioning and heating equipment systems; and other specialized equipment. It also offers parts, including replacement compressors, evaporator coils, motors, and other component parts; and supplies, such as thermostats, insulation materials, refrigerants, ductworks, grills, registers, sheet metals, tools, copper tubing, concrete pads, tapes, adhesives, and other ancillary supplies, as well as plumbing and bathroom remodeling supplies. The company serves contractors and dealers that service the replacement and new construction markets for residential and light commercial central air conditioning, heating, and refrigeration systems. As of December 31, 2021, it operated from 671 locations in the United States, Canada, Mexico, and Puerto Rico, as well as exports its products to Latin America and the Caribbean Basin. Watsco, Inc. was founded in 1945 and is headquartered in Miami, Florida.

How the Company Makes Money

Watsco makes money primarily by distributing HVAC/R products and earning a gross margin on the difference between its purchase cost from manufacturers and the resale price to customers (primarily HVAC contractors). Its core revenue stream is the sale of HVAC equipment (e.g., air conditioners, heat pumps, furnaces and related systems), which is typically the largest-ticket category, complemented by recurring sales of replacement parts, consumables, and supplies (which can benefit from ongoing service and repair demand). The company also sells refrigeration-related products and other HVAC/R accessories through its branches and online ordering platforms, generating revenue through order volume, product mix, and pricing/margin management. Key factors influencing earnings include demand tied to replacement cycles and new construction, seasonal weather patterns that affect HVAC usage and replacement/repair activity, product availability and manufacturer pricing, and the company’s scale and logistics efficiency across its distribution network. Information on specific partnership terms or manufacturer arrangements is null.

Watsco Financial Statement Overview

Summary

Strong balance sheet and liquidity profile (low and improving leverage, debt-to-equity ~0.11) with robust cash generation (FCF up ~10% in 2025). Offsetting factors are the 2025 revenue decline and some margin/return normalization from prior peaks.

Income Statement

Revenue expanded strongly from 2020–2024, but slipped in 2025 (annual revenue down ~2.4%). Profitability remains solid for a distributor, with gross margin generally in the high‑20% range and net margin mostly around ~6–8%, though both eased from the 2022 peak. Operating profitability is steady overall, but the recent top-line decline and modest margin compression temper the outlook.

Balance Sheet

Leverage is conservative and improving, with debt-to-equity trending down to ~0.11 in 2025 (from ~0.27 in 2021). Equity has grown materially over time, supporting a larger asset base and strengthening balance-sheet flexibility. Returns on equity are healthy (mid-teens in 2025 after higher levels in 2022–2024), but the step-down in profitability versus prior years is the main blemish.

Cash Flow

Cash generation is robust and generally aligns well with earnings, with free cash flow close to net income across the period. Free cash flow grew meaningfully in 2025 (up ~10%), and operating cash flow remains strong in absolute dollars. Still, cash flow has been somewhat choppy year-to-year, and operating cash flow has not consistently exceeded accounting profits, indicating some working-capital sensitivity.

Breakdown	Dec 2025	Dec 2024	Dec 2023	Dec 2022	Dec 2021
Income Statement
Total Revenue	7.24B	7.62B	7.28B	7.27B	6.28B
Gross Profit	2.03B	2.04B	1.99B	2.03B	1.67B
EBITDA	781.43M	792.10M	803.72M	840.59M	656.65M
Net Income	496.99M	536.29M	536.34M	601.17M	418.94M
Balance Sheet
Total Assets	4.46B	4.53B	3.73B	3.49B	3.09B
Cash, Cash Equivalents and Short-Term Investments	733.28M	781.94M	210.11M	147.50M	118.27M
Total Debt	478.79M	447.46M	505.06M	390.53M	454.21M
Total Liabilities	1.23B	1.47B	1.11B	1.24B	1.09B
Stockholders Equity	2.78B	2.66B	2.23B	1.89B	1.66B
Cash Flow
Free Cash Flow	535.52M	743.01M	526.48M	536.31M	324.10M
Operating Cash Flow	569.61M	773.10M	561.95M	571.96M	349.57M
Investing Cash Flow	-98.12M	-290.67M	-41.34M	-33.84M	-148.58M
Financing Cash Flow	-568.12M	-158.53M	-460.08M	-503.96M	-228.60M

Watsco Technical Analysis

• Technical Analysis Sentiment: Neutral
• Last Price: 383.13
• 50DMA: Negative
• 100DMA: Positive
• 200DMA: Negative
• MACD: Positive
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For WSO, the sentiment is Neutral. The current price of 383.13 is below the 20-day moving average (MA) of 394.19, below the 50-day MA of 393.21, and below the 200-day MA of 391.72, indicating a bearish trend. The MACD of -6.34 indicates Positive momentum. The RSI at 44.98 is Neutral, neither overbought nor oversold. The STOCH value of 53.25 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for WSO.

Watsco Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
WSO	77 Outperform	$15.56B	25.70	18.04%	3.38%	-0.71%	-0.17%
GWW	77 Outperform	$49.41B	28.33	45.93%	0.86%	4.83%	-3.60%
FAST	75 Outperform	$51.09B	36.60	32.83%	2.10%	6.92%	5.98%
CNM	71 Outperform	$9.29B	18.07	23.82%	―	8.09%	6.33%
FERG	66 Neutral	£42.35B	28.00	35.56%	1.35%	4.92%	18.72%
Sector *	63 Neutral	$10.79B	15.43	7.44%	2.01%	2.89%	-14.66%
POOL	59 Neutral	$7.52B	66.59	31.86%	2.15%	-0.60%	-5.99%

Watsco Corporate Events

Watsco Posts Lower 2025 Revenue But Record Margins

On February 17, 2026, Watsco reported 2025 results marked by a 5% revenue decline to $7.24 billion but a record gross margin of 28.0%, as pricing technologies and OEM price actions offset weaker HVAC equipment volumes amid regulatory shifts and slower homebuilding. Despite lower earnings per share of $12.25 and softer fourth-quarter sales against a strong prior-year comparison, the company generated record fourth-quarter operating cash flow of $400 million, met its inventory reduction goals during the A2L refrigerant transition, and raised its annual dividend by 10% to $13.20 per share, underscoring its debt-free balance sheet, strong cash position and confidence in long-term growth supported by continued technology investments and digital adoption among contractors.

The most recent analyst rating on (WSO) stock is a Hold with a $370.00 price target. To see the full list of analyst forecasts on Watsco stock, see the WSO Stock Forecast page.