Watsco (WSO) AI Stock Analysis

• Market Cap: $20.81B
• Dividend Yield: 2.37%
• Average Volume (3M): 302.19K
• Price to Earnings (P/E): 38.7
• Beta (1Y): 1.20
• Revenue Growth: 3.92%
• EPS Growth: N/A
• Country: US
• Employees: 7,220
• Sector: Industrials
• Sector Strength: 75
• Industry: Industrial - Distribution
• EPS (TTM): 2.37
• Shares Outstanding: 34,803,110
• 10 Day Avg. Volume: 323,294
• 30 Day Avg. Volume: 302,188
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): 2.64
• Price to Cash Flow (P/CF): 13.30
• P/FCF Ratio: 13.10
• Enterprise Value/Market Cap: 0.86
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: 8.78
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $484.17
• Price Target Upside: 6.27% Upside
• Rating Consensus: Hold
• Number of Analyst Covering: 8

Watsco's stock is bolstered by strong financial performance and a positive earnings outlook, despite some technical weaknesses and valuation concerns. The company's strategic initiatives and robust financial health provide a solid foundation for future growth, though challenges in international markets and product transitions pose risks. Overall, the stock presents a balanced risk-reward profile, with a moderate level of attractiveness.

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.

Sales Growth

Sales are trending up midsingle digits, and growth is expected to improve as sales shift fully to A2L.

Stock Opportunity

The recent decline in the stock price is seen as a buying opportunity despite the initial disappointment.

Negative Factors

Consumer Demand

Observed deteriorating consumer air conditioning purchase conditions in response to higher prices and broader economic uncertainty.

Economic Conditions

Weak economies in Canada and Mexico and softer new home construction are identified as key issues affecting performance.

HVAC Demand

Concerns on near-term residential HVAC demand create uncertainty for potential stock upside.

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 exhibits strong financial health with consistent revenue and profit growth. The income statement demonstrates robust margins and operational efficiency. The balance sheet is solid, featuring low leverage and high equity, ensuring financial stability. Cash flows are healthy, with effective cash generation relative to net income, despite a slowdown in free cash flow growth.

Income Statement

Watsco's income statement reflects strong profitability and consistent revenue growth. The gross profit margin for TTM (Trailing-Twelve-Months) stands at a healthy 26.8%, with a net profit margin of 7.0%. The company has experienced steady revenue growth, with a notable increase of 20.5% from 2020 to 2021 and continued growth thereafter. EBIT and EBITDA margins are robust at 10.0% and 10.2%, respectively, showcasing operational efficiency.

Balance Sheet

The balance sheet indicates solid financial stability with a low debt-to-equity ratio of 0.07 in TTM, suggesting minimal reliance on debt financing. The equity ratio is strong at 100%, reflecting a healthy balance between assets and liabilities. Return on equity is commendable at 11.9%, indicating efficient use of shareholder funds. The company maintains a solid cash position, although cash reserves have decreased compared to previous years.

Cash Flow

Cash flow analysis reveals a positive outlook, with a substantial operating cash flow to net income ratio of 0.93, indicating effective cash generation relative to net income. Free cash flow is strong, although it has seen a decline in growth rate compared to prior years. The free cash flow to net income ratio is 0.88, suggesting efficient conversion of income into cash.

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: Negative
• Last Price: 455.61
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Positive
• RSI: Neutral
• STOCH: Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For WSO, the sentiment is Negative. The current price of 455.61 is below the 20-day moving average (MA) of 485.58, below the 50-day MA of 496.00, and below the 200-day MA of 487.88, indicating a bearish trend. The MACD of -10.54 indicates Positive momentum. The RSI at 38.88 is Neutral, neither overbought nor oversold. The STOCH value of 18.98 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for WSO.

Watsco Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
FAST	77 Outperform	$45.95B	39.96	32.35%	1.98%	3.08%	-0.76%
AIT	76 Outperform	$9.15B	24.13	22.70%	0.66%	0.37%	3.52%
GWW	76 Outperform	$48.72B	25.96	58.98%	0.81%	4.19%	6.60%
FERG	75 Outperform	£33.89B	20.99	29.63%	2.01%	1.84%	-5.54%
WSO	70 Outperform	$20.81B	38.71	18.91%	2.37%	3.92%	―
POOL	66 Neutral	$11.74B	27.54	31.51%	1.65%	-3.56%	-16.69%
Sector *	63 Neutral	$4.29B	11.36	5.34%	214.53%	4.14%	-9.10%

Watsco Corporate Events

Watsco Navigates Product Transition Amid Revenue Dip

In the first quarter of 2025, Watsco experienced a 2% decrease in revenues to $1.53 billion, with a flat gross profit of $430 million and improved gross profit margin. The company is undergoing a large-scale product transition due to regulatory changes affecting 55% of its sales, transitioning to HVAC systems with lower global warming properties. Despite a decline in international sales, the U.S. residential replacement market saw a 10% increase, supported by new customer acquisition and improved product mix. Watsco’s strong balance sheet and strategic investments in technology and inventory position it well for future growth, with expectations of resilient demand in the upcoming selling season.

Spark’s Take on WSO Stock

According to Spark, TipRanks’ AI Analyst, WSO is a Outperform.

Watsco’s overall score reflects its strong financial performance, particularly in cash flow generation and balance sheet management, which are key strengths. The company’s commitment to growth through technology and strategic acquisitions further supports its stock value. However, valuation concerns due to a high P/E ratio and some technical indicators suggest a cautious outlook. The positive earnings call and corporate events, such as the dividend increase, reinforce confidence in Watsco’s long-term growth potential.

To see Spark’s full report on WSO stock, click here.

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.