Earnings Update: Here's Why Analysts Just Lifted Their Watsco, Inc. (NYSE:WSO) Price Target To US$447

As you might know, Watsco, Inc. (NYSE:WSO) last week released its latest quarterly, and things did not turn out so great for shareholders. Results look to have been somewhat negative - revenue fell 2.1% short of analyst estimates at US$2.1b, and statutory earnings of US$4.49 per share missed forecasts by 4.4%. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

View our latest analysis for Watsco

Taking into account the latest results, the current consensus from Watsco's twelve analysts is for revenues of US$7.63b in 2024. This would reflect a satisfactory 2.6% increase on its revenue over the past 12 months. Statutory earnings per share are predicted to rise 8.4% to US$13.99. Before this earnings report, the analysts had been forecasting revenues of US$7.67b and earnings per share (EPS) of US$14.14 in 2024. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.

With the analysts reconfirming their revenue and earnings forecasts, it's surprising to see that the price target rose 6.6% to US$447. It looks as though they previously had some doubts over whether the business would live up to their expectations. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Watsco, with the most bullish analyst valuing it at US$550 and the most bearish at US$310 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Watsco shareholders.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's pretty clear that there is an expectation that Watsco's revenue growth will slow down substantially, with revenues to the end of 2024 expected to display 5.3% growth on an annualised basis. This is compared to a historical growth rate of 11% over the past five years. Compare this to the 62 other companies in this industry with analyst coverage, which are forecast to grow their revenue at 5.6% per year. Factoring in the forecast slowdown in growth, it looks like Watsco is forecast to grow at about the same rate as the wider industry.

The Bottom Line

The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Watsco analysts - going out to 2026, and you can see them free on our platform here.

It is also worth noting that we have found 2 warning signs for Watsco that you need to take into consideration.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com