Watsco, Inc. Class B (WSO.B) AI Stock Analysis

Watsco, Inc. Class B

(NYSE:WSO.B)

Select Model

Rating:79Outperform

Price Target:$352.00▲(16.06% Upside)

Action:reiterated

Date:10/27/26

Watsco earns a strong score primarily because of its conservative balance sheet, solid profitability and cash generation, and positive earnings-call outlook. Record operating results and improving demand provide additional support, while the relatively full valuation, mixed technical trend, and unresolved margin pressures limit the upside.

Positive Factors

Conservative balance sheetLow leverage and substantial equity growth give Watsco financial flexibility to fund acquisitions, technology, and distribution expansion without relying heavily on debt. This strengthens resilience through demand cycles and supports continued investment while preserving capacity for future opportunities.

Negative Factors

Gross margin below long-term targetThe persistent gap between current gross margin and the 30% objective limits near-term earnings conversion and leaves performance dependent on favorable mix, pricing, and execution. Management expects progress to be uneven, so margin expansion may take multiple periods and remain volatile.

Watsco, Inc. Class B (WSO.B) vs. SPDR S&P 500 ETF (SPY)

Market Cap: $12.59B
Dividend Yield: 4.39%
Average Volume (3M): 327
Price to Earnings (P/E): 26.7
Beta (1Y): 0.75
Revenue Growth: 0.30%
EPS Growth: ―
Country: US
Employees: 7,050
Sector: Industrials
Sector Strength: 63
Industry: Industrial - Distribution

Watsco, Inc. Class B 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 equipme...

How the Company Makes Money

Watsco makes money primarily by distributing HVAC/R products and related supplies to contractors and dealers and earning a gross margin on the resale of those goods. Its core revenue stream is product sales across two broad categories: (1) HVAC equip...

Watsco, Inc. Class B Earnings Call Summary

Earnings Call Date:Oct 26, 2026(Q3-2026)|% Change Since:-1.32%|Next Earnings Date:Feb 16, 2027

Earnings Call SentimentPositive

The call was broadly positive. Watsco reported record sales and gross profit, improving organic demand, stronger industry volumes, significant digital and technology traction, successful Jackson performance, completion of the Granite acquisition, improved operating cash flow, and a strong cash-and-no-debt balance sheet. The main challenges were gross margin of 26.4% versus the 30% long-term goal, higher quarterly variable expenses, an incompletely recovered replacement market, elevated inventory, product-cost pressure, and modest margin pressure from customer mix and consolidation. Highlights significantly outweighed the lowlights.

Positive Updates

Record Third-Quarter Sales and Profitability

Third-quarter sales increased 7% to a record $2.22 billion, including 4% same-store growth. Gross profit reached a record $586 million, operating income was $225 million with a 10.1% operating margin, and earnings per share was $3.77.

Negative Updates

Gross Margin Below Long-Term Target

Third-quarter gross margin was 26.4%, while Watsco's long-term goal is 30%. Management said gross margins have been in a narrow range and that reaching 30% will not be a straight-line progression, with quarter-to-quarter choppiness expected.

Company Guidance

Management said the impact from the A2L transition will be largely over by the end of this year, its long-term gross-margin goal is 30%, and it is heading from 27%-ish to 30%-ish, although “it will not be a straight line” with “choppiness, certainly quarter-to-quarter”; fourth-quarter margin is generally better, with about 20, 30 basis points of improvement over a 10-year average, though “I’m not giving guidance,” while the expectation is that OEM pricing actions will come “early and more conventional and kind of more ordinary” over the next 12 months, and the company expects some price increases this fall going into next year. Hydros will continue to scale in 2027, October is “looking healthy to date,” and management “hope and expect to carry it through the end of the year,” while year-end inventory has an opportunity to be more or less equal to last year, excluding the two acquisitions; Granite inventory was about $140 million-$150 million, and side discharge was “probably in the 8%-10% range of the total market today” and “going to continue to grow.”

Watsco, Inc. Class B Financial Statement Overview

Summary

Strong overall financial performance, led by a very strong balance sheet, low leverage, healthy profitability, and substantial cash generation. Moderating margins, return on equity, and free-cash-flow growth temper the score.

Income Statement

78Positive

Balance Sheet

89Very Positive

Cash Flow

79Positive

Financial statement breakdown
Breakdown	TTM	Dec 2025	Dec 2024	Dec 2023	Dec 2022	Dec 2021
Income Statement
Total Revenue	7.44B	7.24B	7.62B	7.28B	7.27B	6.28B
Gross Profit	2.02B	2.03B	2.04B	1.99B	2.03B	1.67B
EBITDA	740.74M	781.43M	792.10M	803.72M	840.59M	656.65M
Net Income	469.52M	496.99M	536.29M	536.34M	601.17M	418.94M
Balance Sheet
Total Assets	5.23B	4.46B	4.53B	3.73B	3.49B	3.09B
Cash, Cash Equivalents and Short-Term Investments	648.70M	733.28M	781.94M	210.11M	147.50M	118.27M
Total Debt	553.72M	478.79M	447.46M	404.79M	390.53M	369.71M
Total Liabilities	1.70B	1.23B	1.47B	1.11B	1.24B	1.09B
Stockholders Equity	3.03B	2.78B	2.66B	2.23B	1.89B	1.66B
Cash Flow
Free Cash Flow	666.97M	535.06M	743.01M	526.48M	536.31M	324.10M
Operating Cash Flow	703.42M	569.61M	773.10M	561.95M	571.96M	349.57M
Investing Cash Flow	20.45M	-98.12M	-290.67M	-41.34M	-33.84M	-148.58M
Financing Cash Flow	-549.07M	-568.12M	-158.53M	-460.08M	-503.96M	-228.60M

Watsco, Inc. Class B Technical Analysis

Technical Analysis SentimentNeutral

Last Price303.30

Price Trends

50DMA303.86Negative

100DMA333.23Negative

200DMA362.47Negative

Market Momentum

MACD0.38Negative

RSI50.46Neutral

STOCH24.43Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For WSO.B, the sentiment is Neutral. The current price of 303.30 is above the 20-day moving average (MA) of 296.89, below the 50-day MA of 303.86, and below the 200-day MA of 362.47, indicating a neutral trend. The MACD of 0.38 indicates Negative momentum. The RSI at 50.46 is Neutral, neither overbought nor oversold. The STOCH value of 24.43 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for WSO.B.

Watsco, Inc. Class B Peers Comparison

Overall Rating

UnderperformOutperform

Sector (63)

Financial Indicators

WSO.B against its peers
Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
WSO.B	79Outperform	$12.64B	26.70	16.24%	4.39%	0.30%	―
Sector *	63Neutral	$10.79B	15.43	7.44%	2.01%	2.89%	-14.66%

* Industrials Sector Average

Performance Comparison

WSO.B and its peers over the selected period
Show on chart	Ticker	Company Name	Price	Change	% Change
	WSO.B	Watsco, Inc. Class B	303.30	-45.34	-13.01%

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.

Date of analysis: Oct 27, 2026

Watsco, Inc. Class B AI Stock Analysis