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Watsco, Inc. (WSO) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Watsco, Inc. (WSO)

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Intrinsic Value (DCF)

Current$380.10
→
Intrinsic$549.52
+45%
$375.24$549.52$880.45
Market implies 9% growth for 5 years
DCF analysis suggests WSO could have 45% upside at 19% growth — verify assumptions match your view.
At $380, the market prices in 9% annual cash flow growth — a moderate expectation aligned with historical trends (19%).
Range: Bear $375 → Bull $880. Current price implies expectations below the base case, but well above the bear case.
Discount ↓Growth →15%17%19%21%
8%$667$723$783$847
10%$470$509$550$593
12%$361$390$420$453
14%$292$315$339$364

Bull Case

  • Bull case ($880) offers 132% upside at 22% growth, 9% discount
  • 31% margin of safety vs. base case estimate
  • Market-implied growth (9%) ≤ historical CAGR (19%)

Bear Case

  • Bear case ($375) implies 1% downside at 15% growth, 12% discount
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5-Year Free Cash Flow Projection

Year 1$880.48M
Year 2$1.04B
Year 3$1.24B
Year 4$1.47B
Year 5$1.74B
Terminal$25.55B

📐 Model Inputs

Growth Rate18.5%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$743.01MTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is WSO stock undervalued or overvalued?
🟢 UNDERVALUED

WSO trades at $380.10 vs. our DCF-derived intrinsic value of $549.52, implying +54% upside. At a 10.0% WACC and 18.5% projected FCF growth, the market appears to be underpricing the present value of WSO's future cash flows. The bear case ($365.32) still suggests upside, providing margin of safety.

What is WSO's intrinsic value?

Using a 5-year DCF model: Base FCF of $743M, projected at 18.5% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 10.0% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $-79M net debt and dividing by 0.04B shares: Bear $365.32 | Base $549.52 | Bull $817.90. Current price $380.10 implies +54% to base case.

How is WSO's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 18.5% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=10.0%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($20.53B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 27.6x.