Watsco (WSO) AI Stock Analysis

• Market Cap: $18.49B
• Dividend Yield: 2.63%
• Average Volume (3M): 312.03K
• Price to Earnings (P/E): 35.1
• Beta (1Y): 1.02
• Revenue Growth: 3.92%
• EPS Growth: 1.09%
• Country: US
• Employees: 7,220
• Sector: Industrials
• Sector Strength: 86
• Industry: Industrial - Distribution
• EPS (TTM): 1.93
• Shares Outstanding: 34,885,200
• 10 Day Avg. Volume: 411,556
• 30 Day Avg. Volume: 312,030
• PEG Ratio: 0.35
• Price to Book (P/B): 4.69
• Price to Sales (P/S): 0.00
• P/FCF Ratio: 16.48
• Enterprise Value/Market Cap: 0.49
• Enterprise Value/Revenue: 0.30
• Enterprise Value/Gross Profit: 4.45
• Enterprise Value/Ebitda: 2.89
• 1Y Price Target: $490.00
• Price Target Upside: 7.15% Upside
• Rating Consensus: Hold
• Number of Analyst Covering: 8

• Rating: 70 Outperform
• Price Target: $504.00 ▲(10.21%Upside)

Watsco scores well in financial performance, with robust revenue growth and strong margins. The earnings call provided positive guidance, though technical indicators suggest bearish trends, and the high P/E ratio indicates potential overvaluation. Overall, while the company shows strong fundamentals, market and valuation concerns weigh on the stock score.

Positive Factors

M&A and Growth Opportunities

There is an M&A opportunity as HVAC and plumbing converge, indicating growth potential.

Market Position

A premium is likely warranted as WSO displays a more defensive business model vs the OEMs and has solidified a #1 market share in the fragmented HVAC distribution space.

Pricing Strategy

Reaffirmed long-term goal for 30% gross margins driven by pricing technology that is halfway rolled out.

Negative Factors

Consumer Behavior

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

Demand Uncertainty

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

Economic Conditions

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

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 through the distribution and sale of HVAC/R products. Its revenue model is based on purchasing HVAC/R equipment and parts from manufacturers and selling them to contractors and dealers who install and maintain these systems. Key revenue streams include the sale of air conditioning and heating equipment, refrigeration systems, and replacement parts. Watsco's extensive distribution network and strong relationships with leading manufacturers like Carrier, Goodman, and Trane enable it to offer a comprehensive portfolio of products. The company's earnings are further supported by its focus on value-added services, such as technical support and training for contractors, which help build customer loyalty and drive repeat business.

Watsco Financial Statement Overview

Summary

Watsco's financial performance is strong, with consistent revenue and profit growth. The company's income statement shows impressive margins, and its balance sheet demonstrates low leverage and high equity. Cash flows are healthy, though there is room for improvement 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	TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement
Total Revenue	7.58B	7.62B	7.28B	7.27B	6.28B	5.05B
Gross Profit	2.04B	2.04B	1.99B	2.03B	1.67B	1.22B
EBITDA	788.04M	792.10M	803.72M	863.26M	656.65M	426.94M
Net Income	529.34M	536.29M	536.34M	601.17M	418.94M	269.58M
Balance Sheet
Total Assets	4.45B	4.48B	3.73B	3.49B	3.09B	2.48B
Cash, Cash Equivalents and Short-Term Investments	431.82M	781.94M	210.11M	147.50M	118.27M	146.07M
Total Debt	459.69M	447.46M	404.79M	390.53M	360.52M	216.14M
Total Liabilities	1.37B	1.42B	1.11B	1.24B	1.09B	704.59M
Stockholders Equity	2.67B	2.66B	2.23B	1.89B	1.66B	1.49B
Cash Flow
Free Cash Flow	459.97M	743.01M	526.48M	536.31M	324.10M	517.94M
Operating Cash Flow	491.75M	773.10M	561.95M	571.96M	349.57M	534.38M
Investing Cash Flow	164.85M	-290.67M	-41.34M	-33.84M	-148.58M	-16.34M
Financing Cash Flow	-498.61M	-158.53M	-460.08M	-503.96M	-228.60M	-448.49M

Watsco Technical Analysis

• Technical Analysis Sentiment: Neutral
• Last Price: 457.32
• 50DMA: Positive
• 100DMA: Negative
• 200DMA: Negative
• MACD: Negative
• RSI: Neutral
• STOCH: Negative

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 457.32 is above the 20-day moving average (MA) of 437.82, above the 50-day MA of 454.06, and below the 200-day MA of 484.24, indicating a neutral trend. The MACD of -3.03 indicates Negative momentum. The RSI at 58.57 is Neutral, neither overbought nor oversold. The STOCH value of 90.19 is Negative, 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
FAST	77 Outperform	$48.96B	42.58	32.35%	4.12%	3.08%	-0.76%
AIT	75 Outperform	$9.34B	24.59	22.23%	0.75%	0.50%	4.48%
GWW	73 Outperform	$50.46B	26.82	57.19%	0.87%	3.71%	7.23%
WSO	70 Outperform	$18.49B	35.05	18.91%	2.63%	3.92%	1.09%
POOL	67 Neutral	$11.38B	28.38	31.49%	1.65%	-3.56%	-16.75%
Sector *	61 Neutral	C$6.56B	9.38	3.44%	2.88%	6.99%	-11.09%
FERG		£32.25B	26.07	29.28%	1.13%	―	―

Watsco Corporate Events

Watsco Holds Annual Shareholders Meeting, Elects New Directors

On June 2, 2025, Watsco, Inc. held its Annual Meeting of Shareholders, where key proposals were voted on. The election of directors resulted in Gary L. Tapella, J. Michael Custer, and Valerie F. Schimel being elected to serve until 2028. Additionally, a non-binding advisory resolution on executive compensation was approved, and Deloitte & Touche LLP was ratified as the independent registered public accounting firm for the 2025 fiscal year.

The most recent analyst rating on (WSO) stock is a Hold with a $425.00 price target. To see the full list of analyst forecasts on Watsco stock, see the WSO Stock Forecast page.

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.