Watsco, Inc. (NYSE:WSO) just released its quarterly report and things are looking bullish. Watsco beat earnings, with revenues hitting US$1.5b, ahead of expectations, and statutory earnings per share outperforming analyst reckonings by a solid 11%. 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.
After the latest results, the nine analysts covering Watsco are now predicting revenues of US$5.19b in 2021. If met, this would reflect a reasonable 4.3% improvement in sales compared to the last 12 months. Per-share earnings are expected to increase 3.1% to US$7.07. Before this earnings report, the analysts had been forecasting revenues of US$5.14b and earnings per share (EPS) of US$6.79 in 2021. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.
The consensus price target was unchanged at US$221, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. 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$240 and the most bearish at US$185 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or thatthe analysts have a strong view on its prospects.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. Next year brings more of the same, according to the analysts, with revenue forecast to grow 4.3%, in line with its 3.8% annual growth over the past five years. Juxtapose this against our data, which suggests that other companies (with analyst coverage) in the industry are forecast to see their revenues grow 4.5% per year. It's clear that while Watsco's revenue growth is expected to continue on its current trajectory, it's only expected to grow in line with the industry itself.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Watsco following these results. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider industry. The consensus price target held steady at US$221, with the latest estimates not enough to have an impact on their price targets.
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 forecasts for Watsco going out to 2022, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 1 warning sign for Watsco you should know about.
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