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Watsco (WSO) Looks Promising: Time to Invest in the Stock?

Watsco, Inc. WSO has been gaining strength from its continuous investment in industry-leading technologies, accretive acquisitions along with a consistent focus on rewarding customers. This Zacks Rank #1 (Strong Buy) company’s shares have outperformed the industry over the past year. The company has been witnessing favorable estimate revisions, making us confident of its inherent strength amid ongoing inflationary pressure and supply chain disruptions.

The Zacks Consensus Estimate witnessed an uptrend as analysts raised their estimates. In the past 30 days, the Zacks Consensus Estimate for 2022 has jumped 5.6% to $14.46 from $13.69. The estimated figure indicates 34.1% year-over-year growth.

Zacks Investment Research
Zacks Investment Research

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Four 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 in enhancing customer experience through e-commerce. The company is deploying technology that improves order fill rates with speed and accuracy.

Gradually, Watsco is transforming manual processes into a completely digital platform. Driven by various technology platforms, the current run rate of e-commerce sales was nearly 34% in the first quarter from the comparable year-ago period. E-commerce sales outpaced $2 billion for the 12 months at the first-quarter end and grew 19% for the year. This is attributable to the major technology spending that increased 27.8% year over year to $46 million over the last 12 months.

Accretive Buyouts: Acquisitions have been Watsco’s preferred mode of solidifying its product portfolio and leveraging new business opportunities in a bid to increase the customer base and profitability. The company focuses on partnering with businesses focused on the HVAC/R industry. Watsco’s revenues in HVAC/R distribution grew to $6.3 billion in 2021 from $64.1 million in 1989, mainly buoyed by the strategic acquisition of companies with established market positions.

Rewarding Shareholders: Watsco significantly rewards shareholders on a timely basis through share repurchases and dividends. The company has been paying cash dividends for 48 consecutive years. Watsco has been focused on sharing its cash flows with shareholders along with maintaining a strong financial position. The company has increased dividends in 20 of the last 21 years. In February 2022, the board of directors raised the annual dividend by 13% to $8.80 per share, effective April 2022.

Superior ROE: Watsco’s superior return on equity (ROE) is also indicative of its growth potential. The company’s ROE currently stands at 23.8% compared with the industry’s 16.7%. This indicates efficiency in using its shareholders’ funds and Watsco’s ability to generate profit with minimum capital usage.

3 Other Construction Stocks Hogging the Limelight

Some other top-ranked stocks, which warrant a look in the Construction sector, include Patrick Industries PATK, Beazer Homes USA BZH and NVR, Inc. NVR. You can see the complete list of today’s Zacks #1 Rank stocks here.

Patrick Industries — sporting a Zacks Rank #1 — is a leading component solutions provider for the RV, marine, and manufactured housing industries. Patrick Industries, like many others in the broader RV and consumer marine space, is amid a massive run of revenue growth that began about a decade ago.

Patrick Industries’ expected earnings growth rate for 2022 is 36.7%. The Zacks Consensus Estimate for current-year earnings has improved 19.7% over the past 30 days.

Beazer Homes, carrying a Zacks Rank #2 (Buy), designs, builds and sells single-family homes. BZH designs homes that appeal primarily to entry-level and first move-up homebuyers. Beazer Homes USA’s objective is to provide customers with homes that have quality and value. BZH’s subsidiary, Beazer Mortgage, originates the mortgages for the company's homebuyers.

Beazer Homes’ expected earnings growth rate for fiscal 2022 is 48.9%. The Zacks Consensus Estimate for current-year earnings has improved 15% over the past 30 days.

NVR, also carrying a Zacks Rank #2, is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis. In order to serve homebuilding customers, NVR operates a mortgage banking and title services business. NVR operates in two business segments:  Homebuilding and Mortgage Banking.

NVR’s expected earnings growth rate for the current year is 68.4%. The Zacks Consensus Estimate for current-year earnings has improved 20.4% over the past 30 days.

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