Watsco Inc (WSO.B) stock analysis

P/E below its 5-year median

Watsco's P/E of 26.1 is below its own 5-year median of 30.8.

P/E above the industry

Watsco's P/E of 26.1 is above the Wholesale Trade-durable Goods median of 21.6.

EV/EBITDA against its history

Needs positive EBITDA and price history.

P/B above the industry

Watsco's price-to-book of 4.18 is above the Wholesale Trade-durable Goods median of 2.08.

Trading above fair value

The share price of $303.56 is above our fair value estimate of $235.40.

Margin of safety under 20%

The price is 29.0% above fair value, so there is no margin of safety.

Revenue growing under 10% a year

Revenue grew -0.2% a year over the last three fiscal years, short of the 10% we look for.

EPS growing under 10% a year

Diluted EPS grew -7.4% a year over the last three fiscal years.

Earnings growth not accelerating

Net income grew -10.5% over the last twelve months, against a 5-year average of 13.0% a year.

Growing slower than the industry

Revenue grew -3.0% over the last twelve months; the Wholesale Trade-durable Goods median is 6.5%.

Company guidance

No outlook found in earnings releases from the last twelve months.

Gross margin slipping

Gross margin was 27.5% over the last twelve months, against 27.5% a year earlier.

Return on equity over 15%

Return on equity was 16.5% over the last twelve months and averaged 25.3% over five years.

Return on capital over 10%

Return on invested capital was 19.6%, above the 10% that usually covers the cost of capital.

Return on equity above the industry

Watsco's return on equity of 16.5% is above the Wholesale Trade-durable Goods median of 6.5%.

Earnings grew over 5 years

Net income grew 13.0% a year on average over the last five fiscal years.

Net margin below its 5-year average

Net margin was 6.5% over the last twelve months, against a 5-year average of 7.2%.

Net margin above the industry

Watsco's net margin of 6.5% is above the Wholesale Trade-durable Goods median of 2.0%.

Low debt

Debt is 4.0% of shareholders' equity, under the 40% we consider low.

Debt falling against equity

Debt to equity fell from 14.5% five years ago to 4.0%.

Debt covered by cash flow

Operating cash flow over the last twelve months equals 612% of total debt.

Interest coverage

Interest expense is not reported separately.

Short-term assets cover short-term debts

Current assets are 3.20 times current liabilities.

Low bankruptcy risk

The Altman Z-score is 7.46; above 3 is the safe zone and below 1.8 the distress zone.

Pays a dividend

Watsco paid dividends worth 4.2% of the share price over the last twelve months.

Yield below Treasuries

The 4.2% yield is below the 4.4% on a 1-year Treasury.

Yield in the top quarter

The top quarter of US dividend payers yield 4.0% or more; Watsco yields 4.2%.

Dividend not cut

The dividend per share has not fallen by more than 10% in any of the last 10 fiscal years.

Not covered by earnings

Dividends take 105% of net income, leaving little room.

Covered by free cash flow

Dividends take 71.6% of free cash flow.