Watsco (WSO) AI Stock Analysis

• Market Cap: $13.91B
• Dividend Yield: 3.42%
• Average Volume (3M): 402.06K
• Price to Earnings (P/E): 26.7
• 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): 3.98
• Shares Outstanding: 34,923,800
• 10 Day Avg. Volume: 485,741
• 30 Day Avg. Volume: 402,055
• PEG Ratio: -13.73
• Price to Book (P/B): 6.69
• Price to Sales (P/S): 2.33
• P/FCF Ratio: 23.92
• Enterprise Value/Market Cap: 1.13
• Enterprise Value/Revenue: 2.12
• Enterprise Value/Gross Profit: 7.51
• Enterprise Value/Ebitda: 19.93
• 1Y Price Target: $401.29
• Price Target Upside: 17.37% Upside
• Rating Consensus: Hold
• Number of Analyst Covering: 9
• EPS Forecast (FY): 12.43
• Revenue Forecast (FY): $7.28B

• Rating: 71 Outperform
• Price Target: $377.00 ▲(10.27% Upside)

Watsco's overall stock score reflects strong financial performance and effective management, offset by technical weaknesses and valuation concerns. The company's robust cash flow and strategic focus on technology adoption are significant positives, while sales challenges and high valuation temper the outlook.

Positive Factors

Strong Cash Flow Management

Robust cash flow generation supports strategic investments and operational stability, enhancing long-term growth prospects and financial resilience.

E-commerce Growth

Significant growth in e-commerce sales reflects successful digital transformation, expanding market reach and improving customer engagement, crucial for future competitiveness.

Technology Adoption

Strong adoption of technology platforms enhances operational efficiency and customer interaction, positioning Watsco as a leader in digital innovation within the HVAC industry.

Negative Factors

Sales Decline

Declining sales indicate potential market challenges and demand issues, which could impact revenue growth and market position if not addressed.

Operating Expenses Increase

Rising operating expenses due to inefficiencies can strain profitability and highlight challenges in managing product transitions effectively.

Soft Sales Outlook

A weak sales outlook suggests ongoing market pressures and potential revenue headwinds, requiring strategic adjustments to sustain growth.

Watsco Business Overview & Revenue Model

Company Description

Watsco, Inc. (WSO) is a leading distributor of HVAC/R (heating, ventilation, air conditioning, and refrigeration) equipment and related parts and supplies in North America. Founded in 1945, the company operates through a network of subsidiaries and serves a diverse customer base, including contractors, builders, and commercial end-users. Watsco's core offerings include a wide range of residential and commercial HVAC products, such as air conditioners, furnaces, and refrigeration units, as well as installation and maintenance supplies.

How the Company Makes Money

Watsco generates revenue primarily through the distribution of HVAC/R equipment and supplies. Its revenue model is built on selling products to contractors and other customers, which includes both wholesale and retail sales. Key revenue streams come from selling major brands and proprietary equipment, along with aftermarket parts and supplies. The company benefits from strategic partnerships with leading manufacturers in the industry, which enhance its product offerings and market position. Additionally, Watsco's extensive distribution network and e-commerce platform allow it to reach customers efficiently, providing a competitive advantage that contributes to steady revenue growth.

Watsco Financial Statement Overview

Summary

Watsco exhibits strong profitability with consistent margins and a solid balance sheet. However, recent revenue growth challenges and slight cash flow fluctuations are concerns.

Income Statement

Watsco's income statement shows strong profitability with a consistent gross profit margin around 28% and a net profit margin of approximately 7.4% in the TTM period. Despite a slight decline in revenue growth rate recently, the company maintains healthy EBIT and EBITDA margins, indicating operational efficiency. However, the negative revenue growth in the TTM period is a concern that slightly tempers the overall positive outlook.

Balance Sheet

The balance sheet reflects a solid financial position with a low debt-to-equity ratio of 0.10, indicating conservative leverage. The return on equity remains robust at 19.3%, showcasing effective use of shareholder funds. The equity ratio stands at a healthy level, suggesting strong asset backing. Overall, Watsco's balance sheet demonstrates financial stability and prudent management of resources.

Cash Flow

Watsco's cash flow statement highlights a significant improvement in free cash flow growth at 33.5% in the TTM period, indicating enhanced cash generation capabilities. The operating cash flow to net income ratio is slightly below 1, suggesting efficient conversion of income into cash. The free cash flow to net income ratio is close to 1, reflecting strong cash profitability. However, the decline in operating cash flow compared to the previous year is a point to monitor.

Breakdown	TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement
Total Revenue	7.41B	7.62B	7.28B	7.27B	6.28B	5.05B
Gross Profit	2.10B	2.04B	1.99B	2.03B	1.67B	1.22B
EBITDA	790.17M	792.10M	803.72M	840.59M	656.65M	426.94M
Net Income	549.75M	536.29M	536.34M	601.17M	418.94M	269.58M
Balance Sheet
Total Assets	4.55B	4.53B	3.73B	3.49B	3.09B	2.48B
Cash, Cash Equivalents and Short-Term Investments	524.35M	781.94M	210.11M	147.50M	118.27M	146.07M
Total Debt	457.51M	447.46M	505.06M	390.53M	454.21M	216.14M
Total Liabilities	1.25B	1.47B	1.11B	1.24B	1.09B	704.59M
Stockholders Equity	2.81B	2.66B	2.23B	1.89B	1.66B	1.49B
Cash Flow
Free Cash Flow	517.83M	743.01M	526.48M	536.31M	324.10M	517.94M
Operating Cash Flow	548.74M	773.10M	561.95M	571.96M	349.57M	534.38M
Investing Cash Flow	5.53M	-290.67M	-41.34M	-33.84M	-148.58M	-16.34M
Financing Cash Flow	-521.27M	-158.53M	-460.08M	-503.96M	-228.60M	-448.49M

Watsco Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 341.89
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• 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 Negative. The current price of 341.89 is below the 20-day moving average (MA) of 343.55, below the 50-day MA of 354.60, and below the 200-day MA of 423.47, indicating a bearish trend. The MACD of -1.59 indicates Negative momentum. The RSI at 45.47 is Neutral, neither overbought nor oversold. The STOCH value of 42.96 is Neutral, 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
GWW	73 Outperform	$48.60B	28.53	48.98%	0.86%	4.83%	-3.60%
FAST	72 Outperform	$48.61B	39.70	32.74%	2.07%	6.92%	5.98%
WSO	71 Outperform	$13.91B	26.68	17.61%	3.42%	-0.71%	-0.17%
CNM	71 Outperform	$10.69B	24.01	23.85%	―	8.09%	6.33%
FERG	65 Neutral	$43.94B	22.71	32.90%	1.35%	4.92%	18.72%
POOL	65 Neutral	$8.82B	21.60	29.16%	2.09%	-0.60%	-5.99%
Sector *	63 Neutral	$10.79B	15.43	7.44%	2.01%	2.89%	-14.66%

Watsco Corporate Events

Watsco Files Current Report on Form 8-K

Watsco has filed a Current Report on Form 8-K, which includes Exhibit 99.1, to furnish information under the Securities Exchange Act of 1934. The report clarifies that the information is furnished and not filed, thus not subject to the liabilities of Section 18 of the Act.