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Investing.com - William Blair downgraded Watsco (NYSE:WSO) from Outperform to Market Perform, citing deteriorating HVAC market conditions, particularly in the southern United States. The stock, currently trading at $366.36, sits near its 52-week low of $361.57, having declined over 27% in the past six months.
The research firm cut its third-quarter earnings per share estimate to $3.55, approximately 20% below the consensus estimate of $4.41, based on results from its HVAC industry survey indicating significant weakness in demand. According to InvestingPro data, five analysts have recently revised their earnings estimates downward, while the company maintains a P/E ratio of 28.17x.
William Blair expects Watsco’s third-quarter revenue to miss analyst expectations, assuming normal seasonal patterns of a 1.5% sequential decline, with residential new construction potentially falling 20% and replacement demand dropping by double digits due to macroeconomic weakness and unfavorable weather conditions. Despite these challenges, the company has maintained dividend payments for 42 consecutive years, demonstrating long-term financial stability.
The firm also reduced its fourth-quarter EPS forecast to $1.75, well below the consensus of $2.46, expressing little optimism for near-term demand improvement as year-over-year comparisons become more challenging.
William Blair warned that Watsco shares could trade down to around $300 if weak demand persists, with pressure on valuation likely to continue until visibility improves regarding an HVAC market recovery, which might not occur until spring 2026. Current analyst price targets range from $372 to $525, with InvestingPro offering 10+ additional exclusive insights about Watsco’s valuation and future prospects.
In other recent news, Watsco, Inc. reported its earnings for the second quarter of 2025, which showed a decline in both earnings per share (EPS) and revenue compared to analyst forecasts. The company posted an EPS of $4.52, falling short of the projected $4.80, representing a 5.83% negative surprise. Revenue was reported at 2.06 billion USD, which was below the expected 2.23 billion USD, marking a 7.62% shortfall. Additionally, Watsco’s Board of Directors declared a regular quarterly cash dividend of $3.00 per share on both its Common and Class B common stock, payable on October 31, 2025. This dividend declaration is part of Watsco’s long-standing practice, having paid dividends for 51 consecutive years. The company emphasizes its dividend philosophy, which focuses on sharing cash flow while maintaining a conservative balance sheet. These developments reflect Watsco’s ongoing commitment to shareholder returns despite recent earnings challenges.
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