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Here's Why Watsco (WSO) is a Solid Investment Bet Right Now

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Watsco, Inc. WSO is benefiting from continuous investment in industry-leading technologies and accretive acquisitions. Also, the company’s consistent focus on rewarding customers is encouraging.

Notably, shares of Watsco have gained 18.8% in the past year compared with the Building Products - Air Conditioner and Heating industry’s 10.1% rise. Apart from the above-mentioned tailwinds, the price performance was backed by a solid earnings surprise history. Watsco’s earnings surpassed the Zacks Consensus Estimate in all of the trailing five quarters. Earnings estimates for 2021 have moved up 0.8% in the past 30 days. This positive trend signifies bullish analyst sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Three Factors Favoring the Stock

Robust Investment in Technology: Watsco is focused on investing in modern technologies to enhance customer experience. Responding to this fast-moving digital era, the company is investing more to enhance customer experience through e-commerce. The company is deploying technology that improves order fill rates with speed and accuracy. It has the industry’s largest database of digitized product information, with approximately 900,000 SKUs as of June 2021, which is used by more than 350,000 technical contractors on an annual basis. During second-quarter 2021, the company’s current run rate of e-commerce sales surpassed $1.7 billion and rose 28% year over year. This upside was mainly attributable to the robust performance of different technology platforms. In second-quarter 2021, e-commerce transactions increased 22% from the year-ago quarter’s level.

Moreover, to leverage its technology platforms and enhance customers’ protection at the most, the company launched “contactless” sales and servicing capabilities amid this pandemic. Notably, certified users that are using mobile apps to an e-commerce account rose 12% year over year in the second quarter of 2021.

Watsco’s digital sales platform for HVAC/R contractors — OnCall Air — generated $208 million in gross merchandise value for customers in the second quarter, up 97% year over year. Also, its companion financing platform — CreditForComfort — processed more than 1800 financing applications, up 17% from last year.

Meanwhile, the company’s business intelligence and data analytics will facilitate more insightful assistance and analyzing ability by the managers.

Timely Acquisition: Watsco depends primarily on the acquisition of assets and businesses for strengthening its product portfolio and leveraging new business opportunities to enhance its customer base and profitability. On May 11, 2021, Watsco acquired Acme Refrigeration — a major distributor of air conditioning, heating and refrigeration products in Baton Rouge, LA. Acme Refrigeration provides nearly 7,000 SKUs to more than 4,000 active customers across 18 locations in Louisiana and Mississippi. On Apr 9, 2021, Watsco in collaboration with Carrier Global Corporation acquired the largest Carrier distributor in the Midwest — Temperature Equipment Corporation (TEC). Watsco owns 80% of TEC and Carrier Global owns 20%. With this buyout, the company is set to debut in the U.S. Midwest market. TEC serves approximately 10,000 HVAC customers from 32 locations in Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri and Wisconsin. Watsco holds an 80% stake in TEC and Carrier Global Corporation owns the remaining.

Since 1989, Watsco has taken over 63 businesses as of 2020. The company focuses on partnering with great businesses related to the HVAC/R industry. The company’s revenues in HVAC/R distribution rose to $5.1 billion in 2020 from $64.1 million in 1989, mainly buoyed by the strategic acquisition of companies with established market positions.

Rewarding Shareholder: Watsco significantly rewards shareholders on a timely basis through share repurchases and dividends. The company has been paying cash dividends for 47 consecutive years. Watsco has been focused on sharing its cash flows to shareholders along with maintaining a strong financial position. During February 2021, the board of directors raised the annual dividend by 10% to $7.80 per share. This approach has helped the company gain investors’ trust.

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Zacks Rank & Other Key Picks

Some other top-ranked stocks in the Construction Sector are M/I Homes, Inc. MHO, Loma Negra Compañía Industrial Argentina Sociedad Anónima LOMA and Landsea Homes Corporation LSEA. M/I Homes sports a Zacks Rank #1, while Loma Negra and Landsea Homes carry a Zacks Rank #2.

M/I Homes’ earnings for 2021 is expected to grow 63.3%.

Loma Negra has a three-to-five-year earnings per share growth rate of 26.3%.

Landsea Homes has a trailing four-quarter earnings surprise of 68.3%, on average.



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Landsea Homes Corporation (LSEA) : Free Stock Analysis Report

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