On Dec 29, 2015, we issued an updated research report on Watsco Inc. WSO. The company is expected to benefit from investment in new technologies and products. Further, sustained replacement demand will allow it to maintain the growth momentum.
During the third quarter of 2015, Watsco hit records for earnings per share, net income, operating profit and sales. The results reflected consistent growth in replacement demand and steady movement toward high-efficiency systems. The company expects this momentum to continue through the near term. In the long run, Watsco targets to reduce infrastructure costs, which, in turn, will help increase operating margins.
Notably, Watsco is aggressively investing in a number of scalable technologies. The company has launched mobile apps in e-commerce, enabling customers to make purchases by utilizing the industry's largest source of digitized product information. The implementation of software and other tools will help optimize Watsco’s supply chain, thereby improving its service levels with lower investment.
Watsco has been historically acquisitive in nature. The company’s strategy mainly involves geographic expansion of its HVAC business through acquisitions in newer markets, subsequently increasing revenues and profits through a combination of greater number of locations, products, services and improved management practices.
Further, Watsco’s board has approved a 21% increase in its annual dividend to $3.40 per share. The hike will be reflected in the company’s next regular dividend payment beginning Jan 2016. Moreover, the company remains confident of driving meaningful earnings growth and cash flow, as well as retaining the ability to invest and evaluate additional opportunities.
Watsco currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Stocks that warrant a look in the same sector include Comfort Systems USA Inc. FIX, Armstrong World Industries, Inc. AWI and Owens Corning OC. All three stocks carry a Zacks Rank #2 (Buy).
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