Watsco (WSO)
NYSE:WSO
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Watsco
(NYSE:WSO)
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Rating:77Outperform
Price Target:
$394.00
▲(13.48% Upside)
Action:ReiteratedDate: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
Very low and falling leverage (debt-to-equity ~0.11) and debt-free operations in 2025 give Watsco durable financial flexibility. This supports sustained dividends, opportunistic M&A and cushions cyclical HVAC demand shocks, reducing refinancing and solvency risk over time.
Negative Factors
Significant unit-volume decline
A ~17% drop in unit volumes materially reduces high-ticket equipment sales, which drive a large share of revenue and margin. Persistent weaker volumes can depress scale economics, lower utilization of distribution assets, and lengthen recovery timelines for topline growth.
Read all positive and negative factors
Positive Factors
Negative Factors
Balance-sheet strength
Very low and falling leverage (debt-to-equity ~0.11) and debt-free operations in 2025 give Watsco durable financial flexibility. This supports sustained dividends, opportunistic M&A and cushions cyclical HVAC demand shocks, reducing refinancing and solvency risk over time.
Read all positive factors
Watsco (WSO) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$14.15B
Dividend Yield3.38%
Average Volume (3M)431.06K
Price to Earnings (P/E)25.7
Beta (1Y)1.01
Revenue Growth-0.71%
EPS Growth-0.17%
CountryUS
Employees7,220
SectorIndustrials
Sector Strength72
IndustryIndustrial - Distribution
Share Statistics
EPS (TTM)1.68
Shares Outstanding34,944,443
10 Day Avg. Volume595,032
30 Day Avg. Volume431,055
Financial Highlights & Ratios
PEG Ratio-3.14
Price to Book (P/B)4.59
Price to Sales (P/S)1.76
P/FCF Ratio23.85
Enterprise Value/Market Cap1.00
Enterprise Value/Revenue1.96
Enterprise Value/Gross Profit6.89
Enterprise Value/Ebitda18.43
Forecast
1Y Price Target
$391.25Price Target Upside12.69% Upside
Rating ConsensusHold
Number of Analyst Covering6
EPS Forecast (FY)12.56
Revenue Forecast (FY)$7.37B
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 ga...
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 s...
Watsco Earnings Call Summary
Earnings Call Date:Feb 17, 2026
(Q4-2025)
| % Change Since: |
Next Earnings Date:Apr 16, 2026
Earnings Call Sentiment Positive
The call emphasized strong financial and operational achievements — sizable acquisitions, a 10% dividend increase, record Q4 cash flow, debt-free status, margin improvement (27.1% in Q4) and accelerating digital adoption (35% e-commerce, OnCallAir GMV $1.8B). Management acknowledged meaningful near-term weaknesses: a 17% decline in unit volumes for 2025, a 6% drop in aftermarket/replacement activity, international/commercial softness, and a soft start to 2026 (mid-single-digit declines in Jan/Feb). Leadership framed the situation as a transition from the recent multi-year volatility to a more normalized environment and highlighted ongoing margin and efficiency initiatives (pricing optimization, VCR purchasing, AI). Overall, the positives — cash generation, balance sheet strength, margin progress, digital traction and strategic investments — outweigh the near-term demand headwinds described.Positive Updates
Strategic Acquisitions and Scale Expansion
Added 12 business acquisitions representing over $1,600,000,000 in sales, expanding scale and market share.
Negative Updates
Significant Unit Volume Decline in 2025
Total unit volumes declined ~17% in 2025 (driven in part by tough comparables after a 20%+ unit growth year prior), representing a material drop in equipment sales volumes.
Read all updates
Q4-2025 Updates
Positive
Negative
Strategic Acquisitions and Scale Expansion
Added 12 business acquisitions representing over $1,600,000,000 in sales, expanding scale and market share.
Read all positive updates
Company Guidance
Management said the A2L transition is largely behind them and they expect a more normal 2026 with margins to gradually improve toward a long‑term gross margin goal north of 30% (Q4 GPM was 27.1%, +40 bps). Key targets and results: improve inventory turns (long‑term aspiration ~5 turns from low‑3s; inventory ≈18–19% of LTM sales), generate incremental cash flow (record Q4 cash flow $400M; cash flow per share cited ≈$16.18), and continue disciplined capital allocation — including a 10% dividend raise to $13.20 (52nd consecutive year) and continued M&A (12 acquisitions adding ≈$1.6B sales). Operational metrics cited: FY2025 unit volumes down 17% (aftermarket/replacement ~‑6%), SG&A down 2%, company was debt‑free all of 2025, met a $500M inventory reduction goal, e‑commerce ≈35% of sales (>60% in some U.S. markets), mobile app users +15% to 73,000, OnCallAir GMV +20% to ≈$1.8B run rate, and early‑2026 sales tracking mid‑single‑digit declines (~5%) with commercial and international softer.Watsco Financial Statement Overview
Summary
Income Statement
78
Positive
Balance Sheet
86
Very Positive
Cash Flow
82
Very Positive
| 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
Negative
347.20
Price Trends
393.07
Negative
369.75
Negative
389.58
Negative
Market Momentum
-10.78
Positive
32.98
Neutral
26.68
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 347.2 is below the 20-day moving average (MA) of 379.92, below the 50-day MA of 393.07, and below the 200-day MA of 389.58, indicating a bearish trend. The MACD of -10.78 indicates Positive momentum. The RSI at 32.98 is Neutral, neither overbought nor oversold. The STOCH value of 26.68 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for WSO.
Watsco Risk Analysis
Watsco disclosed 17 risk factors in its most recent earnings report. Watsco reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Watsco Peers Comparison
UnderperformOutperform
Sector (63)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
77 Outperform | $14.15B | 25.70 | 18.04% | 3.38% | -0.71% | -0.17% | |
77 Outperform | $50.08B | 28.33 | 45.93% | 0.86% | 4.83% | -3.60% | |
75 Outperform | $51.62B | 36.60 | 32.83% | 2.10% | 6.92% | 5.98% | |
66 Neutral | $43.72B | 28.00 | 35.56% | 1.35% | 4.92% | 18.72% | |
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% | |
63 Neutral | $9.37B | 23.55 | 23.20% | ― | 8.09% | 6.33% | |
59 Neutral | $7.31B | 20.91 | 31.86% | 2.15% | -0.60% | -5.99% |
* Industrials Sector Average
WSO
Watsco
347.20
-146.81
-29.72%
FAST
Fastenal Company
44.95
6.97
18.36%
POOL
Pool
198.74
-113.71
-36.39%
GWW
WW Grainger
1,057.07
77.92
7.96%
FERG
Ferguson PLC
224.76
66.96
42.44%
CNM
Core & Main
48.15
-0.16
-0.33%
Watsco Corporate Events
Business Operations and StrategyDividendsFinancial Disclosures
Watsco Posts Lower 2025 Revenue But Record Margins
Positive
Feb 17, 2026
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 sl...
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.