Watsco, Inc. (WSO)
Valuation Overview•Is Watsco, Inc. Overvalued or Undervalued?
Trading at a discount compared to peers, but the underlying intrinsic cash flows struggle to support the current price.
Moderate quality score of 56/100, reflecting stable operating margins and manageable leverage.
Wall Street forecasts a balanced outlook with consensus price targets near the current price.
Verdict: Average quality business weighed down by significant growth concerns.
Wall Street sentiment is generally neutral. This is paired with healthy capital returns, anchored by a strong, well-covered dividend yield.
WSO demonstrates adequate business quality with stable profitability. This is supported by a highly conservative balance sheet featuring strong liquidity and pristine Altman Z safety.
The company is facing top-line contraction (-0.2% 3Y CAGR) however, earnings have severely contracted over the same period. Operating efficiency remains adequate with margins around 9.8%.
| Financial Metric | Trend (12Q) | Latest Qtr | 1Y Growth | 3Y CAGR | 5Y CAGR | 10Y CAGR |
|---|---|---|---|---|---|---|
| Revenue | $1.5B | -5.0% | -0.2% | +7.4% | +5.8% | |
| EBITDA | $121.2M | — | -5.2% | — | — | |
| Net Income | $79.1M | -7.3% | -6.1% | — | +11.1% | |
| EPS (Diluted) | $1.87 | -7.9% | -7.4% | +11.8% | +10.5% | |
| Free Cash Flow | -$18.9M | -27.9% | -0.0% | +0.7% | — |
| Metric | TTM | 3Y Avg | 5Y Avg | 10Y Avg |
|---|---|---|---|---|
| Gross Margin | 28.4% | 27.4% | 27.3% | 25.9% |
| Operating Margin | 9.8% | 10.2% | 10.4% | 9.2% |
| Net Margin | 6.8% | 7.1% | 7.2% | 6.1% |
| FCF Margin | 9.7% | 8.1% | 7.4% | 6.9% |
| Quarter | EPS Est. | EPS Act. | Surprise | EPS | Rev |
|---|---|---|---|---|---|
| Q2'26Latest | $1.73 | $1.87 | +8.1% | ||
| Q1'26 | $1.88 | $1.68 | -10.6% | ||
| Q4'25 | $4.44 | $3.98 | -10.4% | ||
| Q3'25 | $4.78 | $4.52 | -5.4% | ||
| Q2'25 | $2.29 | $1.93 | -15.7% | ||
| Q1'25 | $2.15 | $2.37 | +10.2% | ||
| Q4'24 | $4.73 | $4.22 | -10.8% | ||
| Q3'24 | $4.69 | $4.49 | -4.3% |
Total return is -2.4% (1Y), lagging the benchmark by -27.4%
| Period | Total Return | vs S&P 500 (Alpha) | Dividend Contribution |
|---|---|---|---|
| YTD | +17.3% | +8.0% | — |
| 1Y | -2.4% | -27.4% | +2.9% |
| 3YCAGR | +6.6% | -14.3% | +9.3% |
| 5YCAGR | +10.5% | -3.2% | +18.5% |
| 10YCAGR | +13.6% | -0.4% | — |
The S&P 500 is at 31.3x trailing P/E — Expensive relative to historical averages.
Quick answers to common questions about Watsco, Inc. (WSO) valuation, health, and returns.
Watsco, Inc. is estimated to be overvalued under our discounted cash flow framework. relative multiples indicate the stock is Slightly cheap versus peers compared to industry peers. overvalued (implying -65.1% downside from DCF intrinsic value of $140.13)
Watsco, Inc. has multiple valuation anchors: DCF Intrinsic Value: $140.13 | Peer Relative Fair Value: $470.69 | Wall Street Analyst Target: $407.00 (implying +1.5% upside). A convergence of these signals offers higher conviction.
Watsco, Inc. displays fair financial health with a composite quality score of 56/100, supported by a Altman Z-Score of 10.9 (safe zone), Piotroski F-Score of 5/9, Return on Invested Capital (ROIC) of 16.6%.
Watsco, Inc. pays a 3.1% dividend yield, covered by a 95% payout ratio with 12 years of growth, supplemented by a 0.0% buyback yield.
Watsco, Inc.'s current growth trajectory is Decelerating. The company achieved -5.0% 1Y revenue growth and -7.9% 1Y EPS growth, compared to its 3Y revenue CAGR of -0.2%.
Wall Street consensus is Hold based on 26 analysts, beating EPS expectations in 25% of recent quarters with a 1-quarter streak. The consensus price target represents a +1.5% change from current levels.
Investment risks for Watsco, Inc. include: -34.0% 1-year max drawdown, stretched payout ratio. Volatility risk is characterized by a beta of 1.07x.
No. These computations are purely quantitative model outputs for informational purposes. They do not account for qualitative management shifts or macro events. Always consult a licensed RIA before buying or selling shares.
Disclaimer: This page is for informational purposes only and does not constitute financial advice. All valuation models, scores, and target estimates are automated computations under stated assumptions and should not be relied upon as the sole basis for any investment decision.