Watsco (WSO) AI Stock Analysis

• Market Cap: $15.94B
• Dividend Yield: 2.86%
• Average Volume (3M): 438.83K
• Price to Earnings (P/E): 29.9
• Beta (1Y): 1.03
• Revenue Growth: 0.98%
• EPS Growth: 0.80%
• Country: US
• Employees: 7,220
• Sector: Industrials
• Sector Strength: 72
• Industry: Industrial - Distribution
• EPS (TTM): 4.52
• Shares Outstanding: 34,902,824
• 10 Day Avg. Volume: 603,921
• 30 Day Avg. Volume: 438,829
• 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: 1.09
• Enterprise Value/Revenue: 2.31
• Enterprise Value/Gross Profit: 8.40
• Enterprise Value/Ebitda: 21.95
• 1Y Price Target: $458.75
• Price Target Upside: 15.26% Upside
• Rating Consensus: Moderate Buy
• Number of Analyst Covering: 6

• Rating: 69 Neutral
• Price Target: $460.00 ▲(15.57% 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

Strong Financial Performance

Watsco's strong financial performance, marked by consistent revenue growth and solid profitability, indicates a resilient business model capable of sustaining long-term growth.

E-commerce Growth

The significant growth in e-commerce and digital platforms enhances Watsco's market reach and operational efficiency, positioning it well for future industry trends.

Technological Advancements

Investment in technology and AI platforms boosts Watsco's competitive edge, improving customer engagement and operational processes for sustained growth.

Negative Factors

Sales Decline

A decline in sales volume, despite pricing gains, may indicate challenges in market demand or competitive pressures, potentially impacting revenue growth.

Increased SG&A Expenses

Rising SG&A expenses can strain profitability, especially during transitional periods, affecting Watsco's cost management and financial efficiency.

Inventory Challenges

Managing dual inventories during the refrigerant transition increases complexity and costs, potentially affecting operational efficiency and cash flow.

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 products in North America. The company operates through a vast network of locations, primarily serving contractors and installers in the residential and commercial markets. Watsco's core offerings include a wide range of HVAC systems, parts, and supplies, as well as advanced technology solutions to enhance customer service and operational efficiency.

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	394.37M	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: 398.01
• 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 398.01 is above the 20-day moving average (MA) of 394.94, below the 50-day MA of 420.81, and below the 200-day MA of 460.99, indicating a bearish trend. The MACD of -7.46 indicates Negative momentum. The RSI at 45.12 is Neutral, neither overbought nor oversold. The STOCH value of 65.73 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
FAST	80 Outperform	55.89B	46.25	39.08%	1.75%	4.84%	2.98%
GWW	70 Outperform	45.91B	24.01	52.31%	0.90%	4.35%	7.84%
WSO	69 Neutral	$15.94B	29.91	18.38%	2.86%	0.98%	0.80%
FERG	69 Neutral	44.54B	24.18	31.82%	1.47%	3.80%	9.26%
POOL	68 Neutral	11.41B	28.15	31.62%	1.60%	-1.71%	-8.90%
CNM	61 Neutral	10.38B	23.52	22.85%	―	11.02%	7.08%
Sector *	63 Neutral	$10.79B	15.43	7.44%	2.01%	2.89%	-14.66%

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.