As Watsco, Inc. (NYSE:WSO) announced its recent earnings release on 31 December 2018, analyst forecasts seem bearish, with profits predicted to drop by -4.8% next year relative to the past 5-year average growth rate of 12%. With trailing-twelve-month net income at current levels of US$243m, the consensus growth rate suggests that earnings will decline to US$231m by 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.
How will Watsco perform in the near future?
The longer term expectations from the 11 analysts of WSO is tilted towards the positive sentiment. Given that it becomes hard to forecast far into the future, broker analysts tend to project ahead roughly three years. To get an idea of the overall earnings growth trend for WSO, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.
By 2022, WSO’s earnings should reach US$272m, from current levels of US$243m, resulting in an annual growth rate of 4.0%. This leads to an EPS of $7.67 in the final year of projections relative to the current EPS of $7.07. Margins are currently sitting at 5.3%, approximately the same as previous years. With analysts forecasting revenue growth of 0.11533 and WSO’s net income growth expected to roughly track that, this company may add value for shareholders over time.
Future outlook is only one aspect when you’re building an investment case for a stock. For Watsco, there are three key factors you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is Watsco worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Watsco is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Watsco? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.