Watsco distributes air conditioning, heating, and refrigeration equipment; and related parts and supplies in the United States, Canada, Mexico, and Puerto Rico. The company was founded in 1945 and is based in Miami, Florida.
WSO Price Forecast Based on DCF Valuation
DCF Fair Value Target:
The table below illustrates the output of a discounted cash flow forecast using a variety of scenarios for Watsco Inc. To summarize, we found that Watsco Inc ranked in the 57th percentile in terms of potential gain offered. More precisely, our analysis suggests the stock is undervalued by approximately 68.83% on a DCF basis. The most interesting components of our discounted cash flow analysis for Watsco Inc ended up being:
The company's debt burden, as measured by earnings divided by interest payments, is 97.89 -- which is good for besting 96.53% of its peer stocks (US stocks in the Industrials sector with positive cash flow).
The business' balance sheet suggests that 3% of the company's capital is sourced from debt; this is greater than only 10.79% of the free cash flow producing stocks we're observing.
WSO's estimated cost of debt, based largely on its market capitalization and its interest coverage ratio, is 2%; for context, that number is higher than 47.67% of tickers in our DCF set.
Terminal Growth Rate in Free Cash Flow
Return Relative to Current Share Price
Want more companies with a valuation profile/forecast similar to that of Watsco Inc? See LDL, MATW, MSM, AJRD, and ULBI.
As the stock market enters a possible phase of correction, I wanted to add some defensive stocks to my portfolio. I define a defensive stock in the current environment as an “essential” business that will do well regardless of a possible second wave or extended lockdown. I believe Watsco (WSO)...
Value Kicker on Seeking Alpha | September 14, 2020
Source Watsco (WSO) is a mid-cap company that operates as a distributor of HVAC supplies in North America. The company is the largest distributor in the space with over 600 locations in North America which gives it some unique advantages. The company should benefit from the continued growth in new...