olivLaw · US equity research
Watsco, Inc. WSO
Wholesale-Hardware & Plumbing & Heating Equipment & Supplies · SIC 5070 · Vertical: Wholesale — durable goods (SIC 50xx)
Watsco is North America's largest distributor of HVAC/R equipment, parts and supplies, with a business tied largely to replacing aging systems. Revenue in fiscal 2025 reached $7.2 billion, and in the first half of 2026 the company reported stabilising demand after the A2L refrigerant transition. Its margin and e-commerce trends are now the key indicators to follow.
The AI analysis may be outdated: new filings came after its sources (see the «AI analysis» section).
At the close of 04 Nov 2026, Watsco, Inc. (WSO) stock was 319.52 USD (+2.51% on the day), with P/E 27.2 on diluted EPS of 11.74 USD over the last 12 months, dividend yield 3.85%, beta 0.85, 52-week range 279.90–456.86 USD. Latest reported quarter (Q2 2026): revenue of 2.1 bn USD (+2.1% YoY), net income of 163.3 m USD (−11.0% YoY), diluted EPS 4.00 USD.
Data as of · AI analysis dated · Source: SEC filings and closing prices, computed by olivLaw.
Price history
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Technical reading
- RSI (14)
- 57.7
- strong (55–70)
- Bollinger (20, 2)
- 276.27 – 327.04
- in the upper half of the band · %B 0.85 · band width 16.8%
- SMA 50 / 200
- 306.18 / 365.19
- mixed trend
- MACD (12, 26, 9)
- 2.22 / 0.04
- MACD above signal
Indicators describe past prices; on their own they do not predict direction. On our history the RSI ≤ 40 filter added no return (see the signals methodology).
Performance
| Company | S&P 500 | vs S&P 500 | Vertical median | |
|---|---|---|---|---|
| 1 month | +9.4% | −1.1% | +10.5 pp | — |
| 3 months | −4.1% | −0.5% | −3.6 pp | — |
| 6 months | −26.0% | +4.4% | −30.4 pp | — |
| Year to date | −5.2% | +12.3% | −17.5 pp | — |
| 1 year | −10.8% | +13.5% | −24.4 pp | +16.8% |
| 3 years | −13.2% | +76.4% | −89.6 pp | +37.5% |
| 5 years | +8.2% | +63.7% | −55.4 pp | — |
Price returns, dividends excluded.
Quarterly results
Latest quarter: Q2 2026 · 30 Jun 2026
Quarterly margins
Quarterly statements · USD
| Fiscal year | Q3 '24 | Q4 '24 | Q1 '25 | Q2 '25 | Q3 '25 | Q4 '25 | Q1 '26 | Q2 '26 |
|---|---|---|---|---|---|---|---|---|
| Revenue | 2.2 bn | 1.8 bn | 1.5 bn | 2.1 bn | 2.1 bn | 1.6 bn | 1.5 bn | 2.1 bn |
| Cost of revenue | 1.6 bn | 1.3 bn | 1.1 bn | 1.5 bn | 1.5 bn | 1.2 bn | 1.1 bn | 1.5 bn |
| Gross profit | 566.2 m | 468.1 m | 429.6 m | 603.5 m | 568.9 m | 428.4 m | 427.6 m | 578.9 m |
| SG&A | 326.4 m | 338.5 m | 322.6 m | 339.0 m | 343.7 m | 332.6 m | 322.9 m | 349.0 m |
| Operating income | 250.2 m | 136.2 m | 112.2 m | 271.9 m | 234.8 m | 101.5 m | 110.2 m | 238.4 m |
| Depreciation & amortisation | 10.4 m ≈ | 10.5 m | 10.8 m | 10.9 m ≈ | 11.0 m ≈ | 11.1 m | 11.0 m | 10.9 m ≈ |
| Pre-tax income | 257.0 m | 142.9 m | 117.6 m | 274.2 m | 238.5 m | 107.4 m | 116.6 m | 241.9 m |
| Income tax | 55.4 m | 27.7 m | 23.1 m | 57.4 m | 49.3 m | 20.3 m | 23.7 m | 50.6 m |
| Net income | 171.0 m | 96.8 m | 80.1 m | 183.6 m | 161.6 m | 71.7 m | 79.1 m | 163.3 m |
| Diluted EPS | 4.22 | 2.57 ≈ | 1.93 | 4.52 | 3.98 | 1.89 ≈ | 1.87 | 4.00 |
| Operating cash flow | 232.8 m ≈ | 378.9 m | -177.6 m | -7.4 m ≈ | 354.9 m ≈ | 399.8 m | -18.9 m | -2.5 m ≈ |
| Capex | 9.8 m ≈ | 8.0 m | 7.5 m | 6.8 m ≈ | 8.9 m ≈ | 11.3 m | 7.0 m | 9.0 m ≈ |
| Dividends paid | 108.9 m ≈ | 109.0 m | 109.0 m | 121.5 m ≈ | 121.6 m ≈ | 121.7 m | 121.8 m | 134.1 m ≈ |
≈ derived quarter (cumulative difference / share-days average)
E/P over time
E/P = trailing-12-month diluted EPS / price at quarter end. E/P is the inverse of P/E and stays defined when earnings are negative.
Today's P/E sits at the 26 percentile of its own 27-quarter history (min 21.7, median 29.1, max 38.5; quarters with earnings only).
Fiscal years
| Fiscal year | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|---|---|---|
| Revenue | 4.5 bn | 4.8 bn | 5.1 bn | 6.3 bn | 7.3 bn | 7.3 bn | 7.6 bn | 7.2 bn |
| Revenue YoY | +4.7% | +4.9% | +6.0% | +24.2% | +15.8% | +0.1% | +4.6% | −5.0% |
| Net income | 242.9 m | 246.0 m | 269.6 m | 418.9 m | 601.2 m | 536.3 m | 536.3 m | 497.0 m |
| Net income YoY | +16.7% | +1.2% | +9.6% | +55.4% | +43.5% | −10.8% | −0.0% | −7.3% |
| Diluted EPS | 6.49 | 6.50 | 7.01 | 10.78 | 15.41 | 13.67 | 13.30 | 12.25 |
| Diluted EPS YoY | +11.7% | +0.2% | +7.8% | +53.8% | +42.9% | −11.3% | −2.7% | −7.9% |
| net % | 5.3% | 5.2% | 5.3% | 6.7% | 8.3% | 7.4% | 7.0% | 6.9% |
| Free cash flow | 153.4 m | 318.0 m | 517.9 m | 324.1 m | 536.3 m | 526.5 m | 743.0 m | 535.1 m |
Reported results vs expectations
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Balance sheet & financial health
Fiscal year 2025 · 31 Dec 2025
- Cash
- 433.3 m USD
- Financial debt
- 117.2 m USD
- Net debt
- -316.1 m USD
- Equity
- 3.2 bn USD
- Total assets
- 4.4 bn USD
- Debt / equity
- 0.04x
- Current ratio
- 4.12x
- ROE
- 15.8%
- ROA
- 11.2%
- FCF margin
- 7.4%
Financial statements (source on every figure)
Revenue and net income (USD)
Margins
Income statement · USD
| Line | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Source (latest year) |
|---|---|---|---|---|---|---|---|
| Revenue | 5.1 bn | 6.3 bn | 7.3 bn | 7.3 bn | 7.6 bn | 7.2 bn | SEC (XBRL)· 27 Feb 2026verified |
| Cost of revenue | 3.8 bn | 4.6 bn | 5.2 bn | 5.3 bn | 5.6 bn | 5.2 bn | SEC (XBRL)· 27 Feb 2026verified |
| Gross profit | 1.2 bn | 1.7 bn | 2.0 bn | 2.0 bn | 2.0 bn | 2.0 bn | SEC (XBRL)· 27 Feb 2026verified |
| SG&A | 833.1 m | 1.1 bn | 1.2 bn | 1.2 bn | 1.3 bn | 1.3 bn | SEC (XBRL)· 27 Feb 2026verified |
| Operating income | 401.0 m | 628.5 m | 831.6 m | 794.8 m | 781.8 m | 720.3 m | SEC (XBRL)· 27 Feb 2026verified |
| Depreciation & amortisation | 25.9 m | 28.1 m | 31.7 m | 35.1 m | 40.8 m | 43.8 m | SEC (XBRL)· 27 Feb 2026verified |
| EBITDA | 426.9 m ≈ | 656.7 m ≈ | 863.3 m ≈ | 829.9 m ≈ | 822.6 m ≈ | 764.1 m ≈ | SEC (XBRL)· 27 Feb 2026derived |
| Pre-tax income | 399.8 m | 627.5 m | 829.4 m | 789.9 m | 802.6 m | 737.7 m | SEC (XBRL)· 27 Feb 2026verified |
| Income tax | 76.6 m | 128.8 m | 125.7 m | 155.8 m | 166.9 m | 150.1 m | SEC (XBRL)· 27 Feb 2026verified |
| Net income | 269.6 m | 418.9 m | 601.2 m | 536.3 m | 536.3 m | 497.0 m | SEC (XBRL)· 27 Feb 2026verified |
| Diluted EPS | 7.01 | 10.78 | 15.41 | 13.67 | 13.30 | 12.25 | SEC (XBRL)· 27 Feb 2026verified |
| Weighted average diluted shares | 35.2 m | 35.4 m | — | 36.5 m | 37.5 m | 37.9 m | SEC (XBRL)· 27 Feb 2026verified |
| Dividend per share | 6.93 | 7.63 | 8.55 | 9.80 | 10.55 | 11.70 | SEC (XBRL)· 27 Feb 2026verified |
≈ computed by olivLaw from the reported lines of the same year: Operating income + Depreciation & amortisation.
Balance sheet · USD
| Line | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Source (latest year) |
|---|---|---|---|---|---|---|---|
| Cash | 146.1 m | 118.3 m | 147.5 m | 210.1 m | 526.3 m | 433.3 m | SEC (XBRL)· 27 Feb 2026verified |
| Receivables | 535.3 m | 698.5 m | 747.1 m | 797.8 m | 877.9 m | 796.2 m | SEC (XBRL)· 27 Feb 2026verified |
| Inventories | 781.3 m | 1.1 bn | 1.4 bn | 1.3 bn | 1.4 bn | 1.4 bn | SEC (XBRL)· 27 Feb 2026verified |
| Current assets | 1.5 bn | 2.0 bn | 2.3 bn | 2.4 bn | 3.1 bn | 3.0 bn | SEC (XBRL)· 27 Feb 2026verified |
| Property, plant & equipment, net | 98.2 m | 111.0 m | 125.4 m | 136.2 m | 140.5 m | 136.0 m | SEC (XBRL)· 27 Feb 2026verified |
| Goodwill | 412.5 m | 434.0 m | 430.7 m | 457.1 m | 451.9 m | 462.5 m | SEC (XBRL)· 27 Feb 2026verified |
| Intangibles (excl. goodwill) | 169.9 m | 186.9 m | 175.2 m | 218.1 m | 208.5 m | 210.4 m | SEC (XBRL)· 27 Feb 2026verified |
| Total assets | 2.5 bn | 3.1 bn | 3.5 bn | 3.7 bn | 4.5 bn | 4.4 bn | SEC (XBRL)· 27 Feb 2026verified |
| Accounts payable | 251.6 m | 364.2 m | 456.1 m | 369.4 m | 490.9 m | 350.4 m | SEC (XBRL)· 27 Feb 2026verified |
| Short-term debt | 71.8 m | 84.5 m | 90.6 m | 100.3 m | 110.3 m | 117.2 m | SEC (XBRL)· 27 Feb 2026verified |
| Current liabilities | 487.1 m | 726.7 m | 906.5 m | 712.0 m | 983.9 m | 717.7 m | SEC (XBRL)· 27 Feb 2026verified |
| Equity | 1.8 bn | 2.0 bn | 2.2 bn | 2.6 bn | 3.1 bn | 3.2 bn | SEC (XBRL)· 27 Feb 2026verified |
Cash flow · USD
| Line | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Source (latest year) |
|---|---|---|---|---|---|---|---|
| Operating cash flow | 534.4 m | 349.6 m | 572.0 m | 562.0 m | 773.1 m | 569.6 m | SEC (XBRL)· 27 Feb 2026verified |
| Capex | 16.4 m | 25.5 m | 35.7 m | 35.5 m | 30.1 m | 34.6 m | SEC (XBRL)· 27 Feb 2026verified |
| Free cash flow | 517.9 m ≈ | 324.1 m ≈ | 536.3 m ≈ | 526.5 m ≈ | 743.0 m ≈ | 535.1 m ≈ | SEC (XBRL)· 27 Feb 2026derived |
| Investing cash flow | -16.3 m | -148.6 m | -33.8 m | -41.3 m | -290.7 m | -98.1 m | SEC (XBRL)· 27 Feb 2026verified |
| Financing cash flow | -448.5 m | -228.6 m | -504.0 m | -460.1 m | -158.5 m | -568.1 m | SEC (XBRL)· 27 Feb 2026verified |
| Dividends paid | 265.7 m | 294.5 m | 332.4 m | 382.6 m | 423.5 m | 473.8 m | SEC (XBRL)· 27 Feb 2026verified |
≈ computed by olivLaw from the reported lines of the same year: Operating cash flow − Capex.
Computed indicators
Growth
Profitability
Returns
Balance sheet
Liquidity
Cash
Efficiency
Market and valuation
1 indicators that do not apply to the sector.
Valuation
olivLaw classification
Score: 59 / 100
A scoring methodology on indicators and valuation, not investment advice.
(margin_of_safety <= -0.25 & agreement in ['high', 'medium'])
Closing price
04 Nov 2026Source: olivLaw, closing series
Market cap: unavailable
Key indicators
Coverage and freshness
Score by group
- Valuation36
- Returns69
- Quality87
- Balance sheet96
- Growth0
Estimated value range
The combined range = the median of the valid methods' low, central and high values; it is not a probability interval and does not cover every result. Envelope of all methods: 153.75 – 323.65 USD.
Valuation assumptions are editorial choices, not measured; beta is not measured.
Method ranges (USD per share)
— — Mid · ▏ Price
Valuation methods
- DCF (discounted cash flow)unavailable · the reported interest expense is far older than the latest period (the filer changed its XBRL tag): a stale figure is not used
- Peers: EV/EBITDAunavailable · input data missing
- Peers: P/E230.09 – 323.65 (Mid 253.14)24 companies used · median multiple 21.6x · quartiles 19.6x – 27.6xAIT, ARW, AVT, CLMB, CNXN, DXPE, FERG, GIC, GWW, HDSN, HSIC, JXG, MSM, PLUS, POOL, RELL, REZI, RS, SCSC, SITE, SNX, TEL, TLIH, WCC
- Dividend discount (DDM)153.75 – 206.77 (Mid 176.36)
Classification (SIC) comparables group by industry code, not by economic activity; the direct group is an editorial selection by activity. Members' multiples are on their own trailing twelve months, at their own latest close.
Assumptions (illustrative, editorial)
- Risk-free rate
- 4.3%
- Equity risk premium
- 5.0%
- Beta (default)
- 1.00
- Cost of equity
- 9.3%
- Terminal growth
- 2.5%
Factor scorecard
Unattractive profile · Score 59/100
| Factor | Value | Score | Weight used |
|---|---|---|---|
| ROIC · Quality | 17.4% | 80 (vs peers) | 15% |
| Net margin · Quality | 6.5% | 85 (vs peers) | 9% |
| FCF conversion · Quality | 146.5% | 100 (on a fixed band) | 9% |
| Revenue CAGR 3Y · Growth | -0.2% | 0 (on a fixed band) | 12% |
| EPS CAGR 3Y · Growth | -7.4% | 0 (on a fixed band) | 12% |
| Net debt / EBITDA · Balance sheet | -0.3x | 94 (vs peers) | 15% |
| Interest coverage · Balance sheet | unavailable | unavailable | — |
| Current ratio · Balance sheet | 3.2x | 100 (on a fixed band) | 6% |
| P/E (TTM) · Valuation | 27.2x | 36 (vs peers) | 15% |
| EV/EBITDA · Valuation | unavailable | unavailable | — |
| FCF yield · Valuation | unavailable | unavailable | — |
| Shareholder yield (distributions) · Returns | unavailable | unavailable | — |
| Payout ratio (FCF) · Returns | 71.6% | 69 (on a fixed band) | 6% |
Factors without a value were dropped; the remaining weights were renormalised.
Score groups
- Balance sheet96/100 · 2/3 factors with a value
- Growth0/100 · 2/2 factors with a value
- Quality87/100 · 3/3 factors with a value
- Returns· partial69/100 · 1/2 factors with a value
- Valuation· partial36/100 · 1/3 factors with a value
A «partial» group is computed from under half of its weight or from one factor: it is not a full assessment of the group.
Memo
WATSCO INC (WSO). Latest full fiscal year: 2025; data up to 2026-06-30.
Figures computed from the financial statements: revenue 7.2 bn USD in 2025; YoY growth -5.0%; net margin 6.5%; ROE 16.5%; net debt/EBITDA -0.3x.
The estimated value range is 191.92–265.21 USD per share (median of 2 methods, agreement: high); assumptions are illustrative. Against the central value of 214.75 USD, the price of 319.52 USD leaves a potential of -32.8% (value / price − 1) and a margin of safety of -48.8% (1 − price / value). The range is the median of the methods' low, central and high values, not a probability interval.
olivLaw score 59/100, methodological classification: unattractive profile (score, margin of safety and method agreement together; not a judgement of the right price). Groups assessed only in part: returns, valuation. Not investment advice.
Text generated deterministically from the figures shown; no language model. Not investment advice.
What supports the thesis
- ROIC: 17.4%
- Net margin: 6.5%
- FCF conversion: 146.5%
- Net debt / EBITDA: -0.3x
- Current ratio: 3.2x
What contradicts it
- Revenue CAGR 3Y: -0.2%
- EPS CAGR 3Y: -7.4%
- The price is above the estimated value range
Not assessed (insufficient data or a ratio without meaning): Interest coverage, EV/EBITDA, FCF yield, Shareholder yield (distributions).
Versus the vertical median
Wholesale — durable goods (SIC 50xx) · same major group (2-digit SIC) · compared with 39 companies
Multiples and returns vs the median
Price rebased to 100 (monthly, 5 years)
Companies in the vertical
| Market cap | P/E | ROE | Net margin | Revenue YoY | 1A / 3A | |
|---|---|---|---|---|---|---|
| GWWW.W. Grainger, Inc. | 69.7 bn | 32.7 | 54.7% | 11.2% | +4.5% | +57% / +89% |
| TELTe Connectivity PLC | 63.8 bn | 27.5 | 18.5% | 12.6% | +8.9% | −3% / +68% |
| FERGFerguson Enterprises Inc. | 48.1 bn | 25.1 | 32.8% | 6.3% | +3.8% | −1% / +45% |
| RSReliance, Inc. | 22.5 bn | 20.6 | 14.7% | 6.4% | +3.3% | +58% / +61% |
| SNXTd Synnex Corporation | 18.4 bn | 14.0 | 14.9% | 1.8% | +6.9% | +51% / +134% |
| GPCGenuine Parts Co | 17.4 bn | 481.8 | 0.7% | 0.1% | +3.5% | −3% / −5% |
| WCCWESCO International, Inc. | 15.4 bn | 19.8 | 15.4% | 3.0% | +7.8% | +18% / +103% |
| QXOQxo, Inc. | 13.1 bn | — | -2.8% | -4.1% | +11,925.0% | −32% / −57% |
| AITApplied Industrial Technologies, Inc. | 10.9 bn | 26.4 | 22.5% | 8.4% | +8.8% | +15% / +86% |
| ARWArrow Electronics, Inc. | 10.3 bn | 12.9 | 12.2% | 2.3% | +10.5% | +88% / +71% |
| HSICHenry Schein, Inc. | 9.8 bn | 24.2 | 12.9% | 3.1% | +4.0% | +18% / +32% |
| POOLPool Corporation | 7.8 bn | 20.2 | 30.4% | 7.3% | −0.4% | −10% / −37% |
| AVTAvnet, Inc. | 7.0 bn | 21.4 | 6.7% | 1.2% | +24.5% | +80% / +83% |
| MSMMsc Industrial Direct Co., Inc. | 6.5 bn | 29.2 | 15.8% | 5.6% | +6.4% | +30% / +19% |
| SITESiteOne Landscape Supply, Inc. | 5.1 bn | 31.9 | 9.6% | 3.4% | +3.6% | −12% / −16% |
| REZIResideo Technologies, Inc. | 3.1 bn | 8.4 | 15.2% | 5.6% | +10.5% | −11% / +79% |
| DXPEDXP Enterprises, Inc. | 2.5 bn | 27.9 | 18.5% | 4.4% | +11.9% | +69% / +441% |
| PLUSePlus inc. | 2.4 bn | 19.0 | 12.0% | 5.1% | +22.1% | +1% / +43% |
| CNXNPc Connection, Inc. | 2.2 bn | 21.7 | 10.9% | 3.3% | +2.5% | +51% / +47% |
| GICGlobal Industrial Co | 1.8 bn | 19.8 | 27.6% | 6.3% | +4.8% | +66% / +34% |
| DSGRDistribution Solutions Group, Inc. | 1.6 bn | 180.0 | 1.4% | 0.4% | +9.8% | +26% / +38% |
| SCSCScanSource, Inc. | 1.1 bn | 15.7 | 8.7% | 2.4% | +6.1% | +39% / +70% |
| CLMBClimb Global Solutions, Inc. | 803.2 m | 33.8 | 19.5% | 3.1% | +40.1% | +70% / +261% |
| ASPNAspen Aerogels, Inc. | 398.3 m | — | -50.4% | -62.4% | −40.1% | +49% / −54% |
| RELLRichardson Electronics, Ltd. | 211.2 m | 24.7 | 5.2% | 3.6% | +9.4% | +87% / +50% |
1- and 3-year price returns: for WSO from daily closes (the same as the performance table), for the other companies from month-end closes.
olivLaw engine forecast
The world engine ran after the company's latest material disclosure. Probabilities are of TOUCHING a level within the horizon (not closing there) and sit next to the random walk (p_rw), the no-information benchmark.
The engine has no published run for this company yet.
Valuation scenarios (editable assumptions)
Illustrative scenarios
Scenarios are not available. input data missing
AI analysis
AI-generatedAI-generated analysis (Claude) from cited public sources; it may contain errors. Not investment advice. As of 27 Oct 2026 · Model: claude-haiku-5-5.
Possibly outdated: the newest document it read is from 07 Aug 2026; since then the company filed 8-K (27 Oct 2026 · results).
In brief
Watsco is North America's largest distributor of HVAC/R equipment, parts and supplies, with a business tied largely to replacing aging systems. Revenue in fiscal 2025 reached $7.2 billion 1, and in the first half of 2026 the company reported stabilising demand after the A2L refrigerant transition. Its margin and e-commerce trends are now the key indicators to follow.
SWOT
Strengths
- Leading position in North American HVAC/R distribution, a dense network of locations and a broad base of contractor customers.
- Debt-free balance sheet and consistent liquidity that allow acquisitions without reliance on external credit.
- Well-developed digital platforms that deepen customer loyalty and reduce cost to serve.
Weaknesses
- Pronounced dependence on a few suppliers, particularly one manufacturer that supplies most purchases.
- Margins compressed in 2026 against a prior year boosted by 2025 pricing actions.
- Pronounced sales seasonality makes quarterly results sensitive to weather and the replacement cycle.
Opportunities
- A fragmented market leaves room for further acquisitions of regional distributors.
- Growth in e-commerce and AI tools could improve efficiency and reach new customers.
- Replacement of older systems with more efficient models can support long-term demand.
Threats
- Tariffs and shifts in trade policy could raise the cost of products sourced from China and Mexico.
- An economic slowdown or tighter credit could reduce demand and increase customer payment defaults.
- A cyberattack or IT failure could disrupt operations and expose sensitive data.
Risks
- Supplier concentrationhigh
An interruption at a key manufacturer or termination of a relationship could temporarily disrupt operations at certain subsidiaries 1.
- Tariffs and imported costshigh
Higher tariffs on products from China and Mexico could lead to price increases and customer losses 2.
- Acquisition riskmedium
Integrating acquired businesses may reveal unidentified liabilities and divert management attention from daily operations 1.
- Goodwill and asset impairmentmedium
Goodwill, intangibles and long-lived assets make up a large share of total assets, and an impairment could weigh on results 1.
- Cybersecuritymedium
Attacks on information systems could cause business interruption, data loss and legal costs 1.
Investment thesis
What would need to be true (bull case)
- The market leader could benefit from consolidating a fragmented industry through acquisitions and wider location coverage.
- Growth in e-commerce and digital adoption could lift market share and margins over the longer term.
- A debt-free balance sheet gives flexibility for investment and dividends even during periods of volatility.
What would break the thesis
- Gross margins fell in 2026, and lower profitability could persist if price pressure remains high.
- Dependence on a few suppliers, mainly one principal manufacturer, exposes the company to significant operational risk.
- Sensitivity to tariffs and trade policy could affect costs and sales volumes, especially if duties expand.
What to watch
- Gross margin trend after OEM pricing normalisationQ3 2026
- Contribution of the Jackson Supply acquisition in Sunbelt marketsQ3 2026
Products, market & competition
AI-generatedAI-generated analysis (Claude) from cited public sources; it may contain errors. Not investment advice. As of 27 Oct 2026 · Model: claude-haiku-5-5.
Possibly outdated: the newest document it read is from 07 Aug 2026; since then the company filed 8-K (27 Oct 2026 · results).
The business
Watsco, Inc. was incorporated in Florida in 1956 and distributes air conditioning, heating and refrigeration equipment with related parts and supplies. At 31 December 2025 it operated from 695 locations in the United States, Canada, Mexico and Puerto Rico and served more than 130,000 active contractors 1. Its 'buy and build' strategy combines acquisitions of market leaders with expansion of locations, product lines and technology platforms.
Supplier concentration is high: the top ten suppliers accounted for 85% of purchases in 2025, with Carrier alone at 62% 1. Any interruption with a key manufacturer could temporarily disrupt operations at certain subsidiaries 1.
Market context
In the short term, seasonality and the A2L transition shape quarterly results. Management says the market is stabilising and OEM pricing for 2026 has returned closer to historical trends 3. Tariff developments remain uncertain and could add cost pressure if they expand.
Trends
- A2L refrigerant transitionmixed
The move to next-generation systems with A2L refrigerants affected virtually all domestic equipment sold in 2025, but management says it has largely completed by 2026 3. A simpler operating environment could support inventory optimisation and better returns on invested capital.
- Trade policy and tariffsheadwind
Tariffs on components sourced from China and Mexico raise OEM costs, and the company said it may not be able to pass all increases to customers 2. A reduction in tariffs on certain residential systems could bring partial relief 2.
- Replacement of the installed basetailwind
Many installed systems operate below current efficiency standards and are nearing the end of their lives, which supports long-term replacement demand 1. The pace of replacement still depends on economic conditions and consumer access to credit 1.
Competitive position
Watsco competes with national and local distributors, especially in larger markets, as well as with equipment manufacturers that run their own distribution networks 1. Competition is based on product availability, customer service, price and quality 1. The company argues that its scale and inventories give it an edge over factory-operated networks 1.
- Carrier Global CorporationCARR
Key manufacturer that also distributes through its own networks and is Watsco's largest supplier.
- Trane Technologies plcTT
Major HVAC equipment manufacturer that distributes its products through its own organisations in certain markets.
- Lennox International Inc.LII
HVAC equipment maker with its own distribution channels, competing indirectly with independent distribution networks.
- Daikin Comfort Technologies North America, Inc.
North American arm of a Japanese group producing HVAC equipment and distributing it through proprietary and independent channels.
Links, dependencies and risks
Who the company is tied to, from its own SEC filings (customers, suppliers, production, partners, competitors, countries, regulation), from the 5 %+ holders' statements (13D/13G) and from what other companies say about it. Click a node for its evidence; on a listed company the graph moves to it.
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News & filings
In the press
No news in our archive over the last 180 days.
SEC filings
- Current report27 Oct 2026Material agreement · Termination of a material agreement · Creation of a direct financial obligation · Financial statements and exhibits
- Current report27 Oct 2026Results of operations · Regulation FD disclosure · Financial statements and exhibits
- Current report (amendment)14 Oct 2026Item 3.02
- Current report14 Oct 2026Financial statements and exhibits
- Current report17 Sept 2026Item 3.02
- Quarterly report07 Aug 2026
- Current report29 Jul 2026Results of operations · Regulation FD disclosure · Financial statements and exhibits
- Current report (amendment)04 Jun 2026Item 3.02
- Current report04 Jun 2026Financial statements and exhibits
- Current report03 Jun 2026Shareholder vote
Sources
- [1] Form 10-K, fiscal year ended 2025-12-31 · SEC / Watsco, Inc. · 27 Feb 2026
- [2] Form 10-Q, quarter ended 2026-06-30 · SEC / Watsco, Inc. · 07 Aug 2026
- [3] Form 8-K, results release (exhibit 99.1) · SEC / Watsco, Inc. · 29 Jul 2026
Figures computed by olivLaw from SEC filings and closing prices; the qualitative analysis is AI-generated from cited sources. Not investment advice.