Watsco Inc (NYSE: WSO)

Sector: Industrials Industry: Industrial Distribution CIK: 0000105016
Market Cap 14.11 Bn
P/B 17.72
P/E 154.32
P/S 4.58
ROIC (Qtr) 17.84
Div Yield % 1.27
Rev 1y % (Qtr) -4.31
Total Debt (Qtr) 457.51 Mn
Debt/Equity (Qtr) 0.16
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About

Investment thesis

Bull case

  • Strong operating cash flow of 548.74M provides robust 1.20x coverage of total debt 457.51M, indicating excellent debt servicing capability and financial flexibility.
  • Healthy cash reserves of 324.35M provide 2.78x coverage of short-term debt 116.70M, demonstrating strong liquidity position and minimal refinancing risk.
  • Operating cash flow of 548.74M provides strong 14.98x coverage of stock compensation 36.64M, indicating sustainable incentive practices.
  • Strong tangible asset base of 3.88B provides 8.49x coverage of total debt 457.51M, indicating robust asset backing and low credit risk.
  • Robust free cash flow of 517.91M exceeds capital expenditure of 30.84M by 16.79x, indicating strong organic growth funding capability.

Bear case

  • With cash reserves of 324.35M against inventory of 1.60B, the 0.20 cash-to-inventory ratio suggests potential liquidity risks if inventory turnover slows, particularly concerning given current supply chain volatilities.
  • Operating cash flow of 548.74M provides thin coverage of dividend payments of (461.12M) with a -1.19 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
  • Cash reserves of 324.35M provide limited coverage of acquisition spending of (19.30M), which is -16.80x, suggesting aggressive expansion might strain liquidity if market conditions deteriorate.
  • Operating cash flow of 548.74M barely covers operating expenses of (28.62M) with a -19.17 ratio, suggesting thin operational efficiency margins and limited flexibility.
  • Free cash flow of 517.91M represents just -84.46x of debt issuance (6.13M), suggesting concerning reliance on leverage rather than internal cash generation for growth.

Peer comparison

Companies in the Industrial Distribution
S.No. Ticker Company Market Cap P/E P/S Total Debt (Qtr)
1 GWW W.W. Grainger, Inc. 79.03 Bn 100.02 8.17 2.72 Bn
2 FAST Fastenal Co 53.26 Bn 103.14 13.77 0.44 Bn
3 FERG Ferguson Enterprises Inc. /DE/ 51.30 Bn 26.23 1.65 6.02 Bn
4 WCC Wesco International Inc 14.66 Bn 22.69 0.62 6.53 Bn
5 WSO Watsco Inc 14.11 Bn 154.32 4.58 0.46 Bn
6 POOL Pool Corp 12.34 Bn 638.65 8.05 1.39 Bn
7 CNM Core & Main, Inc. 10.88 Bn 25.02 1.40 2.43 Bn
8 AIT Applied Industrial Technologies Inc 10.79 Bn 28.81 2.41 0.57 Bn

Industry comparisons

Current Valuation Value Ind Avg Percentile
EV to Assets EV to Assets 3.10 2.41
EV to Cash from Ops. EV/CFO 121.83 40.73
EV to Debt EV to Debt 30.84 16.40
EV to EBIT EV/EBIT 91.90 18.05
EV to EBITDA EV/EBITDA 65.81 36.64
EV to Free Cash Flow [EV/FCF] EV/FCF 140.46 77.53
EV to Market Cap EV to Market Cap 1.00 1.51
EV to Revenue EV/Rev 4.59 2.64
Price to Book Value [P/B] P/B 17.72 8.70
Price to Earnings [P/E] P/E 154.32 55.05
Dividend Metrics Value Ind Avg Percentile
Dividend Coverage Ratio Div Coverage (Qtr) 1.13 49.20
Dividend Payout Ratio % Div Payout % (Qtr) 88.90 22.67
Dividend per Basic Share Div per Share (Qtr) 11.70 1.88
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr) 91.60 41.28
Interest Coverage Int. cover (Qtr) -100.23 35.27
Growth Metrics Value Ind Avg Percentile
Capex Growth (1y) % Capex 1y % (Qtr) 3.10 -47.49
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr) 10.19 77.69
Dividend Growth (1y) % Div 1y % (Qtr) 10.90 6.21
EBIAT Growth (1y) % EBIAT 1y % (Qtr) -0.82 -84.41
EBITDA Growth (1y) % EBITDA 1y % (Qtr) 0.61 -13.74
EBIT Growth (1y) % EBIT 1y % (Qtr) 0.25 -33.83
EBT Growth (1y) % EBT 1y % (Qtr) 1.10 -41.73
EPS Growth (1y) % EPS 1y % (Qtr) -1.23 -109.80
FCF Growth (1y) % FCF 1y % (Qtr) -21.65 -14.68
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr) 3.97 1.31
Liquidity Ratios Value Ind Avg Percentile
Asset Utilization Ratio Asset Util Ratio (Qtr) 1.63 1.45
Cash Payout Ratio Cash Payout (Qtr) 0.80 0.20
Cash Ratio Cash Ratio (Qtr) 0.40 0.34
Current Ratio Curr Ratio (Qtr) 3.84 2.47
Debt to Equity Ratio Debt/Equity (Qtr) 0.16 0.88
Interest Cover Ratio Int Coverage (Qtr) -100.23 35.27
Times Interest Earned Times Interest Earned (Qtr) -100.23 35.27
Profitability Value Ind Avg Percentile
EBITDA Margin % EBITDA Margin % (Qtr) 9.70 7.33
EBIT Margin % EBIT Margin % (Qtr) 9.07 5.34
EBT Margin % EBT Margin % (Qtr) 9.17 4.29
Gross Margin % Gross Margin % (Qtr) 27.90 28.45
Net Profit Margin % Net Margin % (Qtr) 7.00 2.59