Watsco (WSO) Attains 52-Week High on Replacement Demand - Analyst Blog

Watsco Inc .'s WSO shares attained a new 52-week high of $122.07 during intraday trading on Mar 16, finally closing lower at $120.85.

The company, with a market cap of $3.9 billion, has delivered a year-to-date return of about 25.9%. Average volume of shares traded over the last three months was approximately 205K. The company's long-term estimated earnings per share growth rate stands at 13.2%.

What's Driving Watsco?

Watsco's shares have started gaining since it reported record fourth-quarter results on Feb 12. Fourth-quarter earnings improved 38% to a record 69 cents per share from 50 cents in the year-ago quarter, driven by higher sales, improved selling margins and effective leveraging of operating costs. The reported figure also beat the Zacks Consensus Estimate of 63 cents.

Watsco's joint venture with Carrier Corporation, a wholly owned subsidiary of United Technologies Corp. UTX , continues to generate profits. The company's purchase of an additional 10% interest in the Sun Belt region venture in Jul 2014 will be accretive to its earnings by 20 to 25 cents over the next 12 months.

Watsco has immense potential in the replacement market given an aging stock of air conditioners and heating systems in the U.S. In addition to continued consolidation of the North American HVAC industry, Watsco keeps on increasing its market share through strategic acquisitions and expansion of its product offering as well as logistical and productivity improvements.

Watsco has also hiked its quarterly dividend by 17% to 70 cents per share from 60 cents. The company has paid quarterly dividends for 40 straight years. The recent dividend increase reflects the company's sound balance sheet and cash position.

Watsco is now aiming to capitalize on the growing trend of ductless systems in the U.S. The duct-free systems and VRF technologies are growing at an annual rate of 20%, taking share from traditional unitary and applied systems. The company was an early adopter of duct-free systems and considers itself well positioned with the right partners for success in VRF.

Other Stocks to Consider

Watsco currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Comfort Systems USA Inc. FIX which sports a Zacks Rank #1 (Strong Buy) and Universal Electronics Inc. UEIC with a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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