Watsco (WSO) AI Stock Analysis

• Market Cap: $16.40B
• Dividend Yield: 2.9%
• Average Volume (3M): 352.74K
• Price to Earnings (P/E): 30.1
• Beta (1Y): 1.03
• Revenue Growth: 0.98%
• EPS Growth: 0.80%
• Country: US
• Employees: 7,220
• Sector: Industrials
• Sector Strength: 73
• Industry: Industrial - Distribution
• EPS (TTM): 4.52
• Shares Outstanding: 34,902,824
• 10 Day Avg. Volume: 328,224
• 30 Day Avg. Volume: 352,736
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): N/A
• P/FCF Ratio: N/A
• Enterprise Value/Market Cap: 1.06
• Enterprise Value/Revenue: 2.31
• Enterprise Value/Gross Profit: 8.40
• Enterprise Value/Ebitda: 21.95
• 1Y Price Target: $464.00
• Price Target Upside: 15.03% Upside
• Rating Consensus: Moderate Buy
• Number of Analyst Covering: 7

• Rating: 69 Neutral
• Price Target: $460.00 ▲(14.03% Upside)

Watsco's overall stock score reflects strong financial performance and promising technological advancements, offset by current challenges in sales and market conditions. The technical analysis indicates bearish momentum, while the valuation suggests the stock may be overvalued. The earnings call provided a balanced view of strengths and risks, highlighting the company's resilience and potential for future growth.

Positive Factors

Pricing and Margins

The A2L transition and tariff pricing provide upside potential for the company.

Strategic Initiatives

A fresh update on strategic focuses revealed both internal and customer-facing AI chatbots, initiatives to improve parts and supplies growth, and an enterprisewide strategy for institutional customers.

Technology and Investment

WSO's scale and willingness to invest in technology-driven solutions to improve customer efficiency and profitability positions WSO for long-term share gains.

Negative Factors

Earnings Performance

Shares are down 5% after EPS missed by 5% due to weak volumes and flattish trends that did not rebound as much as hoped.

Economic Conditions

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

Market Dynamics

Equipment sales fell 6%, lagging behind flat sales for other HVAC products, raising concerns about potential shifts in market dynamics.

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 generates revenue primarily through the sale of HVAC/R equipment, parts, and supplies to contractors and service providers. The company operates on a wholesale distribution model, where it purchases products from manufacturers and sells them to its customers at a markup. Key revenue streams include the sale of heating and cooling systems, refrigeration equipment, and related accessories. Additionally, Watsco benefits from its partnerships with leading manufacturers in the HVAC/R industry, which not only provides a diverse product range but also helps maintain competitive pricing. The company also focuses on expanding its e-commerce capabilities, which has become a significant revenue channel by enhancing customer accessibility and convenience. Seasonal demand fluctuations, particularly during peak heating and cooling seasons, also play a critical role in Watsco's revenue generation.

Watsco Financial Statement Overview

Summary

Watsco demonstrates strong financial performance with consistent revenue growth, solid profitability, low leverage, and robust cash flow generation. The company maintains effective cost management and operational efficiency. However, the decline in Free Cash Flow growth should be monitored as a potential risk.

Income Statement

Watsco demonstrates strong income statement metrics, with a consistent increase in revenue and solid profitability margins. The Gross Profit Margin for TTM is 27.53%, indicating efficient cost management. The Net Profit Margin for TTM is 7.08%, reflecting robust profitability, though it has slightly decreased compared to previous years. The Revenue Growth Rate from 2023 to TTM is 3.07%, showing steady growth. EBIT and EBITDA margins are strong at 10.26% and 10.47%, respectively, highlighting effective operational control.

Balance Sheet

Watsco's balance sheet is strong, with a low Debt-to-Equity Ratio of 0.07 in TTM, indicating low leverage risk. The Return on Equity (ROE) for TTM is 11.24%, demonstrating efficient use of equity to generate profits. The Equity Ratio is high at 100% for TTM, reflecting a solid equity position and financial stability.

Cash Flow

Watsco shows a healthy cash flow situation. The Free Cash Flow Growth Rate from 2024 to TTM is -45.02%, indicating a significant decrease, yet the company maintains positive Free Cash Flow. The Operating Cash Flow to Net Income Ratio is 0.80 for TTM, suggesting decent cash generation relative to net income. The Free Cash Flow to Net Income Ratio is 0.77, reflecting strong free cash flow generation capabilities.

Breakdown	TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement
Total Revenue	7.51B	7.62B	7.28B	7.27B	6.28B	5.05B
Gross Profit	2.07B	2.04B	1.99B	2.03B	1.67B	1.22B
EBITDA	790.99M	792.10M	803.72M	840.59M	656.65M	426.94M
Net Income	531.55M	536.29M	536.34M	601.17M	418.94M	269.58M
Balance Sheet
Total Assets	4.73B	4.48B	3.73B	3.49B	3.09B	2.48B
Cash, Cash Equivalents and Short-Term Investments	292.98M	781.94M	210.11M	147.50M	118.27M	146.07M
Total Debt	454.09M	447.46M	505.06M	390.53M	454.21M	216.14M
Total Liabilities	1.51B	1.42B	1.11B	1.24B	1.09B	704.59M
Stockholders Equity	2.76B	2.66B	2.23B	1.89B	1.66B	1.49B
Cash Flow
Free Cash Flow	408.64M	743.01M	526.48M	536.31M	324.10M	517.94M
Operating Cash Flow	426.57M	773.10M	561.95M	571.96M	349.57M	534.38M
Investing Cash Flow	148.90M	-290.67M	-41.34M	-33.84M	-148.58M	-16.34M
Financing Cash Flow	-506.57M	-158.53M	-460.08M	-503.96M	-228.60M	-448.49M

Watsco Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 403.39
• 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 403.39 is below the 20-day moving average (MA) of 411.89, below the 50-day MA of 439.12, and below the 200-day MA of 471.33, indicating a bearish trend. The MACD of -11.72 indicates Positive momentum. The RSI at 40.64 is Neutral, neither overbought nor oversold. The STOCH value of 19.84 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	76 Outperform	$56.45B	47.54	32.57%	1.69%	4.84%	2.98%
CNM	76 Outperform	$12.75B	29.93	25.11%	―	10.80%	0.98%
GWW	75 Outperform	$48.64B	25.66	55.30%	0.85%	4.35%	7.84%
WSO	69 Neutral	$16.40B	30.12	18.38%	2.90%	0.98%	0.80%
POOL	68 Neutral	$11.38B	28.15	30.02%	1.55%	-1.71%	-8.90%
Sector *	64 Neutral	$10.73B	15.65	7.58%	2.01%	2.80%	-14.92%
FERG	―	£33.71B	27.25	29.28%	1.30%	―	―

Watsco Corporate Events

Watsco Reports Q2 Revenue Drop, Record Profit Margin

In its second quarter 2025 results, Watsco reported a 4% decrease in revenues to $2.06 billion, but achieved a record gross profit margin of 29.3% amidst the transition to A2L refrigerants. Despite softer market conditions, the company expanded its operating margin and continued to invest in technology and customer training to support the regulatory transition, positioning itself to capture market share as the industry adopts new digital tools.

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.