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Watsco (WSO)-Carrier JV to Acquire Temperature Equipment

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·3 min read
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Watsco, Inc. WSO and Carrier Global Corporation formed a joint venture (JV) to acquire the largest Carrier distributor in the Midwest — Temperature Equipment Corporation (TEC). However, the terms of the transaction — which is expected to close within the next 30 days — have been kept under wraps. With this buyout, Watsco will debut in the U.S. Midwest market.

Watsco and Carrier have been working closely over the last several years, which provided growth and value for both the companies. The latest buyout of TEC will be an addition to the highly-successful group of joint ventures between Watsco and Carrier.

TEC is a distributor of Carrier, Bryant and Payne brands and offers residential, light commercial and applied HVAC equipment. Notably, Watsco will own 80% of TEC and Carrier will own the remaining 20%.

TEC, one of the largest HVAC distributors in North America, generated sales of $291 million for 2020. It serves approximately 10,000 customers from 32 locations in Illinois, Indiana, Wisconsin, Kansas, Michigan, Minnesota and Missouri. TEC offers various brands of residential, light-commercial and applied HVAC equipment made by Carrier as well as complimentary systems, parts, supplies, and accessories sourced from approximately 1,200 vendors.

Albert H. Nahmad, Watsco’s Chairman & Chief Executive Officer said, “TEC is one of the most iconic, entrepreneurial, long-standing family businesses in our industry. Skip Mungo and his team have built a great company and they will continue TEC’s focus on growth with their name, identity and unique culture in what will be new markets for our company.”

Watsco’s Acquisition Drive

Acquisitions have been Watsco’s preferred mode of solidifying the product portfolio, and leveraging new business opportunities in a bid to increase the customer base as well as profitability. Since 1989, Watsco has taken over 63 businesses. The company focuses on partnering with great businesses focused on the HVAC/R industry. Watsco’s revenues in HVAC/R distribution grew to $5.1 billion in 2020 from $64.1 million in 1989, mainly buoyed by strategic acquisition of companies with established market positions.

It has been actively seeking more opportunities to invest and grow through acquisitions, given relative low market share of the estimated $40 billion North American distribution marketplace for HVAC/R products.

Shares of Watsco have gained 60% over the past year, outperforming the industry’s 9.3% rally. Continuous investment in industry-leading technologies, acquisitions and a strong liquidity position will drive growth.


Zacks Rank & Key Picks

Watsco currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Construction sector include Gates Industrial Corporation PLC GTES, Howmet Aerospace Inc. HWM and Comfort Systems USA, Inc. FIX. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gates Industrial, a Zacks Rank #1 stock, is expected to witness 61.4% earnings growth in 2021.

Howmet Aerospace, also a Zacks Rank #1 stock, is expected to witness 18.8% earnings growth in 2021.

Comfort Systems surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with the average surprise being 64.5%.

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Watsco, Inc. (WSO) : Free Stock Analysis Report

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