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Watsco Inc Ordinary Shares WSO

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Stock XNYS Rating as of
$301.15 −1.54 (0.51%)
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As of Delayed Price Closed

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Watsco Continues Consolidating HVAC Distribution

George Maglares

Watsco was founded in 1947 as an HVAC/R parts and components manufacturer but pivoted to distribution in the late 1980s. Since 1989, Watsco has acquired numerous distributors, expanding the firm's scale and market share. However, forming multiple joint ventures with Carrier transformed the company, giving Watsco exclusive distribution rights to a premium HVAC brand. Watsco formed its first joint venture with Carrier in 2009. The joint venture added $1.3 billion in revenue and comprised 110 locations (95 from Carrier and 15 from Watsco), 19,000 customers, and 1,400 employees. Watsco formed two more joint ventures with Carrier in 2011 and 2012, further deepening the relationship between the two firms. Under Watsco’s control, the Carrier assets have grown to over $4 billion in contribution, and Watsco holds approximately 80% of the equity, with the remainder held by Carrier.

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Price vs Fair Value

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WSO is trading within a range we consider fairly valued.
Price
$301.15
Fair Value
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Uncertainty
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1-Star Price
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5-Star Price
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Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

The company achieves a larger market share, either through organic growth (expanding its store/distribution footprint) or through acquisitions. The market is highly fragmented, so an M&A-driven growth strategy has a long runway.

Bears

OEMs disintermediate third-party distributors to capture more control/economics. We see that industry leaders pursue a wide range of strategies, and it is unclear which is the “best” approach.

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Trading Information

Previous Close Price
$302.69
Day Range
$298.74–305.81
52-Week Range
$295.75–459.00
Bid/Ask
$295.00 / $315.00
Shares Outstanding
41.25M
Market Cap
$12.42B
Volume/Avg
— / 484,360

Key Statistics

Price/Earnings (Normalized)
26.12
Price/Sales
1.57
Dividend Yield (Trailing)
4.18%
Dividend Yield (Forward)
4.38%
Dividend Payment Schedule
Jan, Apr, Jul, Oct
Total Yield
4.22%

Company Profile

Watsco is the largest HVAC and refrigeration products distributor in North America with approximately 13% market share. The company primarily operates in the United States (90% of revenue) with significant exposure in the Sunbelt states. Watsco also has operations in Canada, Latin America, and the Caribbean. The company's customer base comprises more than 120,000 dealers and contractors serving the replacement and new-construction HVAC/R markets for residential and light-commercial applications. As much as 20% of residential HVAC units are distributed through Watsco in any given year. Revenue is approximately 75%-80% residential HVAC and 20%-25% commercial, with relatively small exposure to more complex “applied” solutions.
Sector
Industrials
Industry
Industrial Distribution
Stock Style Box
Small Value
Total Number of Employees
7,050
Website
https://www.watsco.com

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Valuation

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Metric
WSO
CARR
LII
Price/Earnings (Normalized)
 26.1222.7416.02
Price/Book Value
 4.143.479.60
Price/Sales
 1.572.112.38
Price/Cash Flow
 17.7620.2512.74
Price/Earnings
WSO
CARR
LII

Financial Strength

Metric
WSO
CARR
LII
Quick Ratio
 1.410.500.67
Current Ratio
 3.201.021.57
Interest Coverage
 —3.6616.93
Quick Ratio
WSO
CARR
LII

Profitability

Metric
WSO
CARR
LII
Return on Assets (Normalized)
 12.54%5.48%21.03%
Return on Equity (Normalized)
 20.83%14.82%74.87%
Return on Invested Capital (Normalized)
 15.19%9.18%31.11%
Return on Assets
WSO
CARR
LII

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