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Investing.com - Morgan Stanley (NYSE:MS) has reduced its price target on Watsco (NYSE:WSO) to $505.00 from $515.00 while maintaining an Equalweight rating on the HVAC distributor’s stock. The stock, currently trading at $456.55, has shown resilience with a 7.55% gain over the past week. According to InvestingPro analysis, Watsco is currently trading above its Fair Value.
The firm cited concerns about market growth expectations, pointing to current demand softness and replacement cycle headwinds that could affect Watsco’s performance, despite the company’s ability to outgrow the broader market.
Morgan Stanley highlighted Watsco’s scale and investments in technology-driven customer solutions as key strengths that position the company for long-term market share gains against fragmented competitors that lack resources to invest in customer relationships.
The analysis noted that Watsco’s gross margin potential remains "underappreciated" by the market, supported by favorable sales mix toward higher-margin products, pricing tailwinds driven by tariffs, and internal improvement initiatives.
Despite these positive factors, Morgan Stanley indicated that Watsco’s current valuation already reflects many of these strengths, with shares trading at a premium of more than 50% compared to the S&P 500 index.
In other recent news, Watsco, Inc. reported its financial results for the first quarter of 2025, revealing a notable miss in earnings and revenue. The company announced earnings per share of $1.93, which fell short of the projected $2.26, while revenue came in at $1.53 billion, missing the anticipated $1.66 billion. Despite these results, Watsco increased its annual dividend by 11% to $12 per share. Additionally, Watsco completed the acquisition of Southern Ice Equipment Distributors, marking its third acquisition of the year and adding approximately $47 million in annualized sales to its portfolio. The company also announced the election of new directors and the approval of key proposals during its annual shareholder meeting. Furthermore, Watsco declared a regular quarterly cash dividend of $3.00 per share, marking its 200th consecutive payment. These developments reflect Watsco’s ongoing efforts to expand its distribution network and enhance shareholder value.
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