Watsco (NYSE: WSO.B) and Lennox International (NYSE:LII) are both mid-cap construction companies, but which is the superior investment? We will contrast the two companies based on the strength of their risk, valuation, profitabiliy, analyst recommendations, dividends, earnings and institutional ownership.
Profitability
This table compares Watsco and Lennox International’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Watsco | 4.13% | 13.81% | 8.94% |
| Lennox International | 7.97% | 1,371.49% | 16.58% |
Analyst Recommendations
This is a summary of current ratings and price targets for Watsco and Lennox International, as reported by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Watsco | 0 | 0 | 0 | 0 | N/A |
| Lennox International | 1 | 6 | 2 | 0 | 2.11 |
Lennox International has a consensus price target of $176.17, indicating a potential downside of 3.51%.
Institutional & Insider Ownership
0.1% of Watsco shares are owned by institutional investors. Comparatively, 68.4% of Lennox International shares are owned by institutional investors. 14.5% of Watsco shares are owned by insiders. Comparatively, 3.9% of Lennox International shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.
Dividends
Watsco pays an annual dividend of $5.00 per share. Lennox International pays an annual dividend of $2.04 per share and has a dividend yield of 1.1%. Watsco pays out 97.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Lennox International pays out 30.1% of its earnings in the form of a dividend. Lennox International has raised its dividend for 5 consecutive years. Lennox International is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Earnings and Valuation
This table compares Watsco and Lennox International’s revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | EBITDA | Earnings Per Share | Price/Earnings Ratio | |
| Watsco | N/A | N/A | N/A | $5.12 | N/A |
| Lennox International | $3.72 billion | 2.09 | $530.80 million | $6.77 | 26.97 |
Lennox International has higher revenue and earnings than Watsco. Watsco is trading at a lower price-to-earnings ratio than Lennox International, indicating that it is currently the more affordable of the two stocks.
Risk & Volatility
Watsco has a beta of 0.79, meaning that its share price is 21% less volatile than the S&P 500. Comparatively, Lennox International has a beta of 1.16, meaning that its share price is 16% more volatile than the S&P 500.
Summary
Lennox International beats Watsco on 11 of the 13 factors compared between the two stocks.
About Watsco
Watsco, Inc. is a distributor of air conditioning, heating and refrigeration equipment, and related parts and supplies (HVAC/R) in the HVAC/R distribution industry in North America. As of December 31, 2016, the Company sold a range of non-equipment products, representing more than 300,000 stock keeping units, including parts, ductwork, air movement products, insulation, tools, installation supplies, thermostats and air quality products. It distributes products consisting of equipment, including residential ducted and ductless air conditioners ranging from 1 to 5 tons, gas, electric and oil furnaces ranging from 50,000 to 150,000 British Thermal Units, commercial air conditioning and heating equipment and systems ranging from 1.5 to 25 tons and other specialized equipment; parts, including replacement compressors and motors, and supplies, including ductwork, grills, registers, sheet metal, adhesives and other ancillary supplies. It also sells products to the refrigeration market.
About Lennox International
Lennox International Inc. is a provider of climate control solutions. The Company designs, manufactures and markets a range of products for the heating, ventilation, air conditioning and refrigeration (HVACR) markets. It operates through three segments: Residential Heating & Cooling; Commercial Heating & Cooling, and Refrigeration. It manufactures and markets a range of furnaces, air conditioners, heat pumps, packaged heating and cooling systems, equipment and accessories to manage indoor air quality, comfort control products, replacement parts and supplies and related products for both the residential replacement and new construction markets in North America. It manufactures and sells unitary heating and cooling equipment used in light commercial applications, such as low-rise office buildings, restaurants, retail centers, churches and schools. It manufactures and markets equipment for the global commercial refrigeration markets under the Heatcraft Worldwide Refrigeration name.
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