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Watsco
(NYSE:WSO)
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Rating:71Outperform
Price Target:
$337.00
▲(7.65% Upside)
Action:Reiterated
Date:09/18/26
WSO scores well on financial strength (steady margins, low leverage, and strong free-cash-flow conversion) and a supportive earnings narrative (stabilizing demand, digital traction, strong balance sheet, shareholder returns). These positives are tempered by clearly weak technical trends (price below all major moving averages with negative MACD) and a valuation that is not cheap on earnings despite the attractive dividend yield.
Positive Factors
Conservative balance sheet and cash generation
Low leverage preserves financial flexibility while strong free-cash-flow conversion indicates high earnings quality and limited cash leakage. Together, these strengths support acquisitions, technology investment, dividends, and resilience through HVAC demand fluctuations over the next several quarters.
Negative Factors
Gross margin compression
Lower gross margin directly reduces profit generated from each dollar of distribution revenue and has already contributed to weaker operating income and EPS. If pricing benefits do not recur or equipment mix remains unfavorable, margin recovery may take several quarters.
Read all positive and negative factors
Positive Factors
Negative Factors
Conservative balance sheet and cash generation
Low leverage preserves financial flexibility while strong free-cash-flow conversion indicates high earnings quality and limited cash leakage. Together, these strengths support acquisitions, technology investment, dividends, and resilience through HVAC demand fluctuations over the next several quarters.
Read all positive factors
Watsco Key Performance Indicators (KPIs)
Any
Revenue by Geography
Sales distribution across the U.S., Puerto Rico, Mexico and other markets highlights concentration risk and regional growth potential. Strong U.S. exposure ties results to local housing, commercial construction and seasonal demand, while growth in Mexico/Latin America can expand the addressable market but adds currency and execution risk.
Sales distribution across the U.S., Puerto Rico, Mexico and other markets highlights concentration risk and regional growth potential. Strong U.S. exposure ties results to local housing, commercial construction and seasonal demand, while growth in Mexico/Latin America can expand the addressable market but adds currency and execution risk.
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The Fly
The FlyWatsco (WSO) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$12.43B
Dividend Yield4.24%
Average Volume (3M)483.02K
Price to Earnings (P/E)25.7
Beta (1Y)0.90
Revenue Growth-2.98%
EPS Growth-12.07%
CountryUS
Employees7,000
SectorIndustrials
Sector Strength72
IndustryIndustrial - Distribution
Share Statistics
EPS (TTM)11.58
Shares Outstanding35,588,757
10 Day Avg. Volume549,076
30 Day Avg. Volume483,025
Financial Highlights & Ratios
PEG Ratio-3.37
Price to Book (P/B)4.59
Price to Sales (P/S)1.76
P/FCF Ratio23.87
Enterprise Value/Market Cap<0.01
Enterprise Value/Revenue<0.01
Enterprise Value/Gross Profit<0.01
Enterprise Value/Ebitda<0.01
Forecast
1Y Price Target
$384.17Price Target Upside22.72% Upside
Rating ConsensusHold
Number of Analyst Covering8
EPS Forecast (FY)12.08
Revenue Forecast (FY)$7.56B
Watsco Business Overview & Revenue Model
Company Description
Watsco, Inc., together with its subsidiaries, engages in the distribution of air conditioning, heating, and refrigeration equipment, and related parts and supplies in the United States, Canada, Latin America, and the Caribbean. It distributes equi...
How the Company Makes Money
Watsco primarily makes money by buying HVAC equipment, parts, and related supplies from manufacturers and selling them to HVAC contractors and dealers at a markup, generating revenue from product sales (its core revenue stream). A significant port...
Watsco Earnings Call Summary
Earnings Call Date:Jul 29, 2026
(Q2-2026)
| % Change Since: |
Next Earnings Date:Oct 15, 2026
Earnings Call Sentiment Positive
The call portrays a company returning to more conventional operating conditions with stabilized end markets, notable digital and e-commerce momentum, strong cash/no-debt balance sheet and a strategic acquisition (Jackson Supply). Offsetting these positives are a meaningful year-over-year gross margin contraction (~180 bps) driven largely by prior-year pricing and A2L comparisons, softness in commercial/VRF, some regional new-build weakness, and inventory timing considerations. Management emphasizes stabilization, long-term margin targets (30%), and technology-driven growth opportunities, suggesting confidence in future recovery.Positive Updates
Modest Revenue Growth
Sales increased 2% year-over-year to $2.1 billion in Q2 2026.
Negative Updates
Gross Margin Decline
Gross margin declined from 29.3% in Q2 2025 to 27.5% in Q2 2026 (approximately a 180 basis point decrease). Management attributed roughly 130 bps of the decline to prior-year OEM pricing actions and A2L transition comparisons, with the remainder due to equipment mix and lower inventory-driven purchase benefits.
Read all updates
Q2-2026 Updates
Positive
Negative
Modest Revenue Growth
Sales increased 2% year-over-year to $2.1 billion in Q2 2026.
Read all positive updates
Company Guidance
Watsco did not give formal forward guidance but provided directional metrics: Q2 sales +2% to $2.1B, gross profit $579M (gross margin 27.5% vs 29.3% a year ago; 12‑month margin ~27.5%), operating income $238M (operating margin 11.3%), EPS $4.00, cash $464M and no debt, and operating cash flow for the six months improved by $168M; segment and operational callouts included residential HVAC +5% (equipment +3%, commercial -8% with VRF down most, international down single digits), unit pricing ~+2% (AHRI units), field stock down ~ $200M, e‑commerce +13% (37% LTM penetration, 50–70% in some markets) with >70,000 monthly app users, OnCallAir 340k proposals driving $1.9B GMV (+15% YoY), Jackson Supply acquisition (25 locations, $230M annual sales; ~ $20M revenue in June; ~$60M inventory acquired), dividend up 10% to $13.20 (52nd consecutive year), and management reiterated a long‑term gross‑profit target of 30%, July YTD (through July 28) organic growth of ~4–5%, and ongoing plans to improve inventory efficiency as A2L transition and lead‑time normalization continue.Watsco Financial Statement Overview
Summary
Income Statement
78
Positive
Balance Sheet
84
Very Positive
Cash Flow
81
Very Positive
| Breakdown | TTM | Dec 2025 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 |
|---|---|---|---|---|---|---|
Income Statement | ||||||
| Total Revenue | 7.28B | 7.24B | 7.62B | 7.28B | 7.27B | 6.28B |
| Gross Profit | 2.03B | 2.03B | 2.04B | 1.99B | 2.03B | 1.67B |
| EBITDA | 737.47M | 781.43M | 792.10M | 803.72M | 840.59M | 656.65M |
| Net Income | 475.73M | 496.99M | 536.29M | 536.34M | 601.17M | 418.94M |
Balance Sheet | ||||||
| Total Assets | 5.08B | 4.46B | 4.53B | 3.73B | 3.49B | 3.09B |
| Cash, Cash Equivalents and Short-Term Investments | 464.19M | 733.28M | 781.94M | 210.11M | 147.50M | 118.27M |
| Total Debt | 535.27M | 478.79M | 447.46M | 404.79M | 390.53M | 369.71M |
| Total Liabilities | 1.61B | 1.23B | 1.47B | 1.11B | 1.24B | 1.09B |
| Stockholders Equity | 2.99B | 2.78B | 2.66B | 2.23B | 1.89B | 1.66B |
Cash Flow | ||||||
| Free Cash Flow | 698.02M | 535.06M | 743.01M | 526.48M | 536.31M | 324.10M |
| Operating Cash Flow | 733.26M | 569.61M | 773.10M | 561.95M | 571.96M | 349.57M |
| Investing Cash Flow | -128.61M | -98.12M | -290.67M | -41.34M | -33.84M | -148.58M |
| Financing Cash Flow | -531.24M | -568.12M | -158.53M | -460.08M | -503.96M | -228.60M |
Watsco Technical Analysis
Negative
313.05
Price Trends
316.92
Negative
350.36
Negative
367.81
Negative
Market Momentum
-4.35
Positive
36.65
Neutral
8.60
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 313.05 is above the 20-day moving average (MA) of 311.15, below the 50-day MA of 316.92, and below the 200-day MA of 367.81, indicating a bearish trend. The MACD of -4.35 indicates Positive momentum. The RSI at 36.65 is Neutral, neither overbought nor oversold. The STOCH value of 8.60 is Positive, 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 |
|---|---|---|---|---|---|---|---|
78 Outperform | $12.47B | 30.97 | 22.17% | 0.58% | 8.84% | 8.10% | |
78 Outperform | $60.37B | 32.63 | 48.70% | 0.74% | 7.80% | -0.65% | |
71 Outperform | $12.43B | 25.69 | 16.76% | 4.24% | -2.98% | -12.07% | |
67 Neutral | $18.09B | 26.06 | 14.06% | 0.51% | 12.51% | 13.23% | |
67 Neutral | $42.85B | 21.33 | 34.00% | 1.59% | 8.17% | 37.33% | |
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% | |
54 Neutral | $2.76B | 7.58 | 14.70% | ― | 3.42% | ― |
* Industrials Sector Average
WSO
Watsco
297.47
-104.03
-25.91%
AIT
Applied Industrial Technologies
343.45
86.77
33.80%
GWW
WW Grainger
1,280.30
331.55
34.95%
WCC
Wesco International
381.73
167.26
77.98%
REZI
Resideo Technologies
18.35
-11.63
-38.80%
FERG
Ferguson Enterprises
223.33
-4.78
-2.10%
Watsco Corporate Events
Business Operations and StrategyM&A TransactionsPrivate Placements and FinancingRegulatory Filings and Compliance
Watsco to Acquire Granite Group in Strategic Merger
Positive
Sep 17, 2026
On September 12, 2026, Watsco entered into a merger agreement under which two newly formed subsidiaries will merge with BBH Granite Buyer, Inc. and Granite Group Holdings LLC, making both companies wholly owned subsidiaries. The deal values Granit...
Business Operations and StrategyDividendsFinancial DisclosuresM&A Transactions
Watsco reports mixed Q2 results amid margin normalization
Neutral
Jul 29, 2026
Watsco reported second-quarter and year-to-date 2026 results showing modest revenue growth but lower profitability amid normalized pricing and post-transition dynamics in the HVAC market. For the quarter ended June 30, 2026, revenue rose 2% to $2....
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.