Strategic Acquisitions to Benefit Watsco's (WSO) Q3 Earnings

Watsco, Inc. WSO is slated to report third-quarter 2019 results on Oct 17, before the opening bell.

In the last reported quarter, the company’s earnings and revenues lagged the Zacks Consensus Estimate by 5.5% and 1.2%, respectively. Its top line grew 3%, while bottom line was on par with the year-ago figure.

Notably, in the said quarter, the company recorded the highest quarterly net income and revenues in its history. It is likely to have performed impressively in third-quarter 2019 as well, given solid acquisition-related activities and technology enhancement.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for the quarter to be reported is pegged at $2.25, remaining stable over the past 60 days. This indicates an increase of 6.6% from the year-ago earnings of $2.11 per share. Revenues are expected to be $1.38 billion, suggesting a 6.5% year-over-year increase.

 

Watsco, Inc. Price and EPS Surprise

 

Watsco, Inc. Price and EPS Surprise

Watsco, Inc. price-eps-surprise | Watsco, Inc. Quote

Key Factors

Continued development in technology and focus on leveraging new business opportunities through strategic buyouts are expected to have benefited Watsco’s third-quarter results.

Watsco’s deployment of technology in order to meet digital era progresses, speed, productivity and efficiency is likely to have driven top-line growth. With the help of business intelligence and data analytics expertise, the company identifies various cost-saving opportunities and enhances profitability. This strategy is expected to have boosted its top-line performance during the quarter.

Additionally, Watsco’s preferred mode of solidifying the product portfolio and leveraging new business opportunities through acquisitions is likely to have contributed to its performance. The impact of these buyouts, which have been boosting Watsco’s customer base and profitability, are expected to get reflected in the third quarter.

Moreover, the company has a huge growth potential in the replacement and heating equipment market. Demand for its HVAC equipment (heating, ventilating and air conditioning) is likely to have aided growth in the to-be-reported quarter.

However, higher material cost and intense competition are likely to have weighed on its bottom line in the quarter to be reported.

What the Zacks Model Unveils

Our proven model shows that Watsco is unlikely to beat estimates this earnings season. This is because it does not have the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP: Watsco has an Earnings ESP of 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $2.25 per share. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Worth a Look

Here are a few construction stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming release:

Meritage Homes Corporation MTH has an Earnings ESP of +1.12% and carries a Zacks Rank #1.

Jacobs Engineering Group Inc. JEC has an Earnings ESP of +1.14% and holds a Zacks Rank #2.

Masco Corporation MAS has an Earnings ESP of +0.53% and a Zacks Rank #3.

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Masco Corporation (MAS) : Free Stock Analysis Report
 
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