The most recent earnings announcement Watsco, Inc.’s (NYSE:WSO) released in December 2018 signalled that the business experienced a strong tailwind, eventuating to a double-digit earnings growth of 17%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive Watsco’s earnings growth outlook over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Market analysts’ prospects for the coming year seems rather subdued, with earnings climbing by a single digit 3.5%. The growth outlook in the following year seems much more positive with rates reaching double digit 12% compared to today’s earnings, and finally hitting US$272m by 2022.
Although it’s helpful to understand the growth each year relative to today’s level, it may be more valuable gauging the rate at which the earnings are growing on average every year. The pro of this method is that it ignores near term flucuations and accounts for the overarching direction of Watsco’s earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 6.1%. This means that, we can assume Watsco will grow its earnings by 6.1% every year for the next couple of years.
For Watsco, I’ve put together three essential aspects you should look at:
- 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 WSO 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 WSO is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of WSO? 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.