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Growth & Income

Watsco, Inc. (WSO - Analyst Report) recently delivered solid first quarter results, and management provided a bullish outlook for 2012.

This prompted analysts to revise their estimates higher, sending the stock to a Zacks #1 Rank (Strong Buy) stock.

Based on consensus estimates, analysts project solid double-digit EPS growth for Watsco over the next several years. On top of this, the company pays a dividend that yields a solid 3.4%.

Company Description

Watsco, Inc. distributes air conditioning and heating equipment and related parts and supplies in the United States. It is headquartered in Coconut Grove, Florida and has a market cap of $2.3 billion.

First Quarter Results

Watsco recently reported first quarter earnings per share of 24 cents, 14% higher than the same quarter last year. It was in-line with the Zacks Consensus Estimate.

Revenues rose 19% to a record $634 million, well ahead of the consensus of $581 million. This was driven by a 12% increase in sales of air conditioning and heating (HVAC) equipment. And same-store sales were up a solid 7%.

The gross margin did contract 150 basis points, however, to 23.8% of sales. But operating income increased 19% as the operating margin held steady at 3.2%.


In its Q1 press release, the company stated that it expects 2012 EPS between $3.25 and $3.40, representing 19-24% growth over 2011 EPS. This prompted analysts to revise their estimates higher, sending the stock to a Zacks #1 Rank (Strong Buy).

The 2012 Zacks Consensus Estimate is now $3.35, within guidance, and corresponding with 22% growth. The 2013 consensus estimate is currently $3.98, representing 19% growth.


While Watsco has been growing its bottom line, it has also been aggressively raising its dividend. Since 2001, the company has increased it at an average annual rate of 31%.

It currently yields a stellar 3.4%.


The valuation pictures looks reasonable for Watsco with shares trading at 20x 12-month forward earnings, a slight discount to the industry median. Its PEG ratio is 1.2 based on a 5-year consensus growth rate of 16.7%.


Watsco offers investors solid earnings growth potential and a juicy dividend yield at a reasonable price.

Todd Bunton is the Growth & Income Stock Strategist for

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