Shares of Watsco Inc. WSO reached a new 52-week high of $133.85 on Mar 24 and eventually closed at $133.71. The stock price appreciation came on the back of strong fourth-quarter 2015 results, expected synergies from the replacement market, expansion of its product offering as well as logistical and productivity improvements.
The company has a market cap of roughly $4 billion. Average volume of shares traded over the last three months is around 232K. The company’s stock flaunts a one-year return of about 9.2% and a year-to-date return of around 14%.
Growth Drivers
Shares of Watsco have been rising since the company reported its fourth-quarter results, wherein earnings per share of 75 cents increased 9% year over year and beat the Zacks Consensus Estimate of 73 cents. Net sales also improved in the quarter, increasing 3% year over year to a record $903 million.
The outperformance was driven by record sales, market share gains and an all-time high cash flow. Watsco witnessed consistent growth in both residential and commercial markets, with continued strength in sales of high-efficiency replacement systems. The company expects the healthy momentum to continue in 2016.
Watsco’s digital initiatives are centered on investments in scalable platforms for mobile apps, e-commerce, business intelligence and supply chain optimization. Watsco’s strategic goals will help to further strengthen its leadership position, accelerate sales and profit growth, increase the speed and convenience of serving customers, and extend the company’s reach to new geographies and sales channels.
Watsco has immense potential in the replacement market given an aging stock of air conditioners and heating systems in the U.S. The company will benefit from the expansion of its product offering as well as logistical and productivity improvements. Moreover, share repurchases will be accretive to earnings.
Watsco currently holds a Zacks Rank #2 (Buy).
Stocks to Consider
Some better-ranked stocks in the same sector worth considering include AAON Inc. AAON, Graña y Montero S.A.A. GRAM and Headwaters Incorporated HW. All three stocks sport a Zacks Rank #1 (Strong Buy).
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