On Sep 17, we reiterated our Neutral recommendation on
), a leading distributor of air conditioning, heating, and
refrigeration equipment as well as related parts and supplies
(HVAC/R) in the United States.
Watsco reported second quarter 2013 earnings per share of $1.48
and revenues of $1.12 million, both all-time records. In 2013,
Watsco expects to generate earnings per share in the range of
$3.65 to $3.80, reflecting an annual growth rate of 20% to 25%.
Watsco will continue to benefit from the demand in the
replacement market as old units would get replaced by more
energy-efficient units in the coming years. There are
approximately 90 million central air conditioning and heating
systems installed in the United States that have been in service
for more than 10 years. Moreover, higher efficiency units drive
higher pricing and higher margins for the company
Watsco's joint venture with Carrier Corporation, a wholly-owned
United Technologies Corp.
), remains successful and continues to generate profits.
Watsco has an option to purchase an additional 10% interest in
the Carrier joint venture in the Sun Belt region, which becomes
exercisable in Jul 2014. This option, if exercised, is expected
to be accretive to Watsco's earnings.
Watsco expects to meet or exceed its annual target of generating
higher operating cash flow than net income in 2013. With
debt-to-total-capitalization ratio at 27%, the company has
substantial flexibility to make additional investments and
increase its dividends going forward. The company also reiterated
its plans to reduce near-term debt and evaluate increasing the
dividend before 2013 end.
However, in June, housing starts unexpectedly fell to the lowest
level in almost a year to 836,000 units. In July, housing starts
recovered somewhat to 8,96,000 units, below expectations and also
below the peak of just over 1 million in Mar 2013. Recent rise in
mortgage rates in anticipation of the Federal Reserve tapering
its massive bond purchase has made builders cautious about
breaking ground on new projects. This puts a question on the
expected recovery in the housing sector, which would have
Other Stocks to Consider
Other players that are worth a mention in the industry are.
Lennox International, Inc.
), both carrying a Zacks Rank #1 (Strong Buy).
AAON INC (AAON): Get Free Report
LENNOX INTL INC (LII): Free Stock Analysis
UTD TECHS CORP (UTX): Free Stock Analysis
WATSCO INC (WSO): Free Stock Analysis Report
To read this article on Zacks.com click here.