WSO

We rate WATSCO INC (WSO) as a Hold with a composite score of 51.8/100 at a current price of $413.00. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in quality (69th percentile) and stability (63th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (37th percentile) and investment (40th percentile) tempers our overall conviction. We assign a Narrow Moat rating (66/100), Low uncertainty, and Exemplary capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

WATSCO INC holds a mid-tier position (#34 of 50) within the Wholesale Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 51.8/100 places it at rank #1732 in our full 7,333-stock universe. With a $16.3B market capitalization, WATSCO INC operates at meaningful scale within the Wholesale Trade sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue contraction of -3% combined with momentum at the 37th percentile paints a cautious picture of the near-term business outlook. The market appears to be pricing in continued challenges, and a catalyst for reversal is not clearly visible from current data.

The margin cascade tells an important story: gross margins of 28% (+5.3pp vs sector) narrow to operating margins of 11% (+7.6pp vs sector) and net margins of 8.8%, yielding a gross-to-net conversion rate of 32%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $413.00, WATSCO INC is trading near fair value based on current fundamentals. Our value factor score of 46/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 23.7x (a 24% premium to the sector median of 19.1x), EV/EBITDA of 18.9x (at a premium), P/B of 5.0x, P/S of 2.1x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Low uncertainty rating to WATSCO INC. The company exhibits strong financial stability with a beta of 0.77, conservative leverage (38% D/E), and a stability factor in the 63th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

We identify no major risk factors at this time. The company's stability factor sits at the 63th percentile with quality at the 69th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: above-average stability (63th percentile) suggests predictable business dynamics; a 2.84% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate WATSCO INC's capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 21.3%, disciplined leverage (38% D/E), a 2.84% dividend yield. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — WATSCO INC meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. The company returns capital via a 2.84% dividend yield, and the combination of 15.4% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, WATSCO INC receives a Hold rating with a composite score of 51.8/100 (rank #1732 of 7,333). Our quantitative framework assigns a Narrow Moat (66/100, trend: stable), Low uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 51/100.

Our analysis supports a neutral stance on WATSCO INC. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.