WSO changes
Pick any two versions below to diff them.
- Price
- $299.50 → $313.15(+4.6%)
- Discount category
- Far below intrinsic value → Well below intrinsic value
- Next earnings
- Oct 27, 2026 → Jan 27, 2027
- Next earnings is estimate
- No → Yes
- About
- Watsco is the largest distributor of heating, ventilation and air conditioning (HVAC) equipment in North America. It buys equipment, parts and supplies from manufacturers and sells them to contractors, who install and repair systems in homes and buildings. It has removed: about 650 added: 804 locations in the United removed: States and more in added: States, Canada and other removed: countries. added: countries, and 112 of them also sell plumbing products. HVAC equipment gave removed: 68% added: 67% of sales in removed: Q2 added: Q3 2026, other HVAC products removed: 28%, added: 29%, and commercial refrigeration 4%. Most of its sales replace old systems in existing homes, so demand depends more on hot weather and on homeowners than on new construction. Carrier is its largest supplier, with 64% of purchases in Q2 2026, and Carrier owns minority stakes in Watsco's Carrier Enterprise joint ventures. Watsco grows by buying smaller distributors, and it sells more and more through its own e-commerce and mobile apps.
- Thesis
- The market prices Watsco for lower profits after two strong years. In 2025, equipment makers raised prices sharply for inflation and tariffs, and the change to new A2L refrigerants also helped margins. In 2026, these price increases returned to normal. In removed: Q2 added: Q3 2026, gross margin fell to removed: 27.5% added: 26.4% from removed: 29.3%, added: 27.5%, operating income fell removed: 12%, added: 4%, and EPS fell removed: 12% added: 5% to removed: $4.00. Commercial added: $3.77. Residential equipment sales added: grew 7%, with 5% more units, but commercial equipment sales fell removed: 8%. added: 5%. Investors doubt that unit growth can make up for the lower margins. For the gap to close, Watsco must show that profit has stopped falling. Gross margin must removed: stay near the level of the last 12 months, added: stop falling from a year earlier, residential unit volume must keep growing, and operating income must grow from a year earlier by early 2027. The Jackson Supply and Granite Group purchases, which together add about $730 million of yearly sales, must also add to earnings. The removed: first test is the Q3 2026 report removed: on October 27, 2026. added: showed volume growth but a lower margin. The Q4 report in early 2027 and the price increases of the equipment makers for 2027 give the next tests. If margins hold and volume grows, the gap can close over the next four to six quarters.
- Risks
- Gross margin depends on the price increases of equipment makers. These increases were large in 2025 and returned to normal in 2026. If prices stay flat or fall while costs rise, profit can fall more. Demand depends on homeowners who replace old systems and on new home building. High interest rates and weak consumers can delay replacements or move them to repairs. Commercial equipment sales fell removed: 8% added: 5% in removed: Q2 added: Q3 2026. Carrier supplied 64% of Watsco's purchases in Q2 2026 and owns stakes in its main joint ventures. A change in Carrier's strategy, prices or products affects Watsco directly. Granite Group adds plumbing products in the Northeast, a new product line and region for Watsco. Tariffs on metals and imported parts can also raise equipment prices and slow demand.
- Balance sheet
- Cash: removed: $464M added: $649M Debt: $0.0M Net cash: removed: $464M added: $649M Undrawn credit line: removed: $600M, added: $680M, to removed: March 2028 added: October 2031 Watsco removed: has added: had no removed: debt. At June added: debt on its balance sheet at September 30, removed: 2026, it added: 2026. It had removed: $364.2 added: $498.7 million of removed: cash, of which $108.8 million was held by foreign subsidiaries, added: cash and removed: a $100.0 added: $150.0 million removed: certificate of removed: deposit that matured in September 2026. added: short-term cash investments. The figures do not include operating leases on its removed: locations. The $600 million unsecured revolving credit facility, due March 16, 2028, had nothing drawn at June 30, 2026, and Watsco can cut it to $500 million from October to March. added: locations, which were $553.7 million. After the balance sheet date, on October 9, 2026, Watsco paid 80% of the $505.0 million price of Granite Group in cash, about $404 million, and the rest in shares. removed: This used most of added: On October 21, 2026, Watsco signed a new five-year $750 million unsecured revolving credit facility, which replaces the removed: June 30 cash, added: $600 million facility. It borrowed $69.7 million under the new facility on that day, so added: about $680 million was undrawn. Watsco can removed: draw on added: cut the removed: revolving credit facility removed: for working capital, and the Q3 2026 report shows any borrowing. Cash used in operations added: by up to $300 million from September 1 to March 1 of each year. Operating cash flow was removed: $21 added: $304 million in the first removed: half added: nine months of 2026, removed: because of the normal build of inventory before summer. added: up 79%, and $325 million in Q3 2026. In April 2026, Watsco raised its yearly dividend to $13.20 per share. removed: It can also sell new shares under its at-the-market program. As of removed: Jun added: Sep 30, 2026.
- Checkpoints
- Oct 27, 2026: Q3 2026 results: gross margin and unit volume. removed: Pending. added: Failed. Watch: Gross margin near 27.5% or higher with growth in residential unit volume passes; gross margin clearly below 27% or a fall in residential unit volume fails. removed: Feb added: Outcome: Residential unit volume grew 5%, but gross margin fell to 26.4% from 27.5% a year earlier. Jan 27, 2027 (estimate): Q4 2026 results and first Granite Group quarter. Pending. Watch: Operating income that grows from a year earlier with Granite Group added passes; another fall in operating income fails. Q2 2027 (estimate): 2027 equipment price increases and selling season. Pending. Watch: Price increases near the historical trend with stable gross margin in Q1 and Q2 2027 pass; flat prices with lower margin fail.
- Recent events
- Oct added: 27, 2026: Watsco reported Q3 2026 results. Revenue grew 7% to a record $2.22 billion, or 4% on a same-store basis. Gross margin fell to 26.4% from 27.5%, operating income fell 4% to $225 million, and EPS fell 5% to $3.77. Residential equipment sales grew 7%, with 5% more units. Watsco said that sales growth improved through the season and into the fourth quarter. Oct 21, 2026: Watsco signed a new five-year $750 million unsecured revolving credit facility. It replaces the $600 million facility of 2023. Watsco borrowed $69.7 million under the new facility to repay the borrowings under the old one. Oct 9, 2026: Watsco closed the purchase of Granite Group, a distributor of plumbing and HVAC products in seven Northeast states with about $500 million of yearly sales. It paid $505.0 million, 80% in cash and 20% in 338,176 new Watsco shares. On the same day, Watsco said it will report Q3 2026 results before the market opens on October 27, 2026. Sep 12, 2026: Watsco agreed to buy Granite Group for $505.0 million, subject to an adjustment after closing. Jul 29, 2026: Watsco reported Q2 2026 results. Revenue grew 2% to $2.1 billion, but gross margin fell to 27.5% from 29.3%, and EPS fell 12% to $4.00. Domestic residential HVAC equipment sales grew 5%, with 2% more units. E-commerce sales grew 13% in the first half of 2026. Jun 1, 2026: Watsco closed the purchase of Jackson Supply, a Sunbelt HVAC distributor with about $230 million of yearly sales and 25 locations. It paid with 517,884 new Watsco shares. Apr 28, 2026: Watsco reported Q1 2026 results. Revenue was flat at $1.53 billion, and EPS fell 3% to $1.87. Watsco also agreed to buy Jackson Supply. In April 2026, Watsco raised its yearly dividend by 10% to $13.20 per share.