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HVAC equipment distributor Watsco Inc (NYSE:WSO) reported a second-quarter revenue and earnings miss July 25, sending the stock sharply lower.
The Analyst
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Longbow Research's Chris Dankert downgraded Watsco from Buy to Neutral.
The Thesis
While Dankert said he likes Watsco's long-term story, he's concerned the company will struggle to reach its margin target of 15-20 percent. (See the analyst's track record here.)
Efficiency gains can't offset labor, freight and product cost inflation and higher investment in technology, the analyst said.
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"The company is making the right investments in order to secure and gain market share over time," he said.
Timing is unfavorable for the stock, as it often falls on Q3 earnings due to high expectations, Dankert said. He expects the company to report calendar 2018 EPS of $6.75, slightly above the consensus. Longbow forecast sales growth of 6.5 percent and an EBIT margin of 8.5 percent.
The analyst projects calendar 2019 EPS at $7.35, with 4.9-percent sales growth and an EBIT margin of 8.9 percent.
The Price Action
Watsco shares were trading down 1.67 percent at the time of publication Monday afternoon.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.