Watsco (WSO) Hits 52-Week High on Strong Growth Prospects
Watsco Inc.’s (WSO) shares attained a 52-week high of $106.72 during intraday trading on Dec 8, finally closing lower at $104.88.
The company has delivered a year-to-date return of about 16.8% and has a market cap of $3.4 billion. Average volume of shares traded over the last three months was approximately 234K. The company has long-term estimated earnings per share growth rate of 16.3%.
What’s Driving Watsco?
Watsco’s shares have gained and crossed the $100 threshold mark since it reported record third-quarter results on Oct 23. Adjusted earnings came in at $1.56 per share, up 18% year over year, led by share gains in the United States and Canada, a stronger sales mix of high-efficiency HVAC (heating, ventilation, and air conditioning), higher gross margins and improved operating efficiencies. The reported figure beat the Zacks Consensus Estimate by a cent.
Watsco’s joint venture with Carrier Corporation, a wholly owned subsidiary of United Technologies Corp. (UTX), continues to generate profits. The company’s purchase of an additional 10% interest in the Sun Belt region venture in Jul 2014 will be accretive to its earnings by 20 cents to 25 cents over the next 12 months.
Watsco has immense potential in the replacement market given the aging stock of air conditioners and heating systems in the U.S. Furthermore, the company has made several investments over the past one year to increase its market share – adding 200 people in sales, marketing, product specialist and store personnel roles; eight locations have been opened in the past year with 20 more expected to open in the next 12 months. The branches will improve network density as well as the ability to service customers locally. Watsco maintains its long-term plans to increase revenues to over $10 billion and margins above 10%.
Watsco is now aiming to capitalize on the growing trend of ductless systems in the U.S. The duct-free systems and VRF technologies are growing at an annual rate of 20%, taking share from traditional unitary and applied systems. The company was an early adopter of duct-free systems and feels that it is well positioned with the right partners for success in VRF.
Moreover, EPA’s recent decision to significantly reduce the allowed production levels of R-22 gas, beginning in 2015, due to environmental concerns, is a positive for Watsco.
Other Stocks to Consider
Watsco currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Universal Electronics Inc. (UEIC) with a Zacks Rank #1 (Strong Buy) and GigOptix, Inc. (GIG) with a Zacks Rank #2 (Buy).
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Read the Full Research Report on UTX
Read the Full Research Report on UEIC
Read the Full Research Report on GIG
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