On 31 December 2018, Watsco, Inc. (NYSE:WSO) released its earnings update. Generally, analysts seem cautiously bearish, with earnings expected to grow by 3.6% in the upcoming year compared with the higher past 5-year average growth rate of 12%. Presently, with latest-twelve-month earnings at US$223m, we should see this growing to US$231m by 2020. Below is a brief commentary around Watsco’s earnings outlook going forward, which may give you a sense of market sentiment for the company. For those interested in more of an analysis of the company, you can research its fundamentals here.
Can we expect Watsco to keep growing?
The longer term expectations from the 11 analysts of WSO is tilted towards the positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.
This results in an annual growth rate of 6.1% based on the most recent earnings level of US$223m to the final forecast of US$272m by 2022. This leads to an EPS of $7.67 in the final year of projections relative to the current EPS of $6.5. In 2022, WSO’s profit margin will have expanded from 4.9% to 5.4%.
Future outlook is only one aspect when you’re building an investment case for a stock. For Watsco, there are three relevant factors you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is Watsco worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Watsco is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Watsco? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.