Watsco (NYSE: WSO) and Graham Corporation (NYSE:GHM) are both construction companies, but which is the better investment? We will compare the two businesses based on the strength of their dividends, risk, earnings, profitabiliy, institutional ownership, valuation and analyst recommendations.
Analyst Recommendations
This is a summary of current recommendations and price targets for Watsco and Graham Corporation, as provided by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Watsco | 1 | 2 | 3 | 0 | 2.33 |
| Graham Corporation | 0 | 0 | 1 | 0 | 3.00 |
Watsco currently has a consensus price target of $161.75, indicating a potential upside of 7.29%. Graham Corporation has a consensus price target of $30.00, indicating a potential upside of 49.03%. Given Graham Corporation’s stronger consensus rating and higher probable upside, analysts plainly believe Graham Corporation is more favorable than Watsco.
Insider & Institutional Ownership
80.9% of Watsco shares are held by institutional investors. Comparatively, 74.3% of Graham Corporation shares are held by institutional investors. 13.9% of Watsco shares are held by company insiders. Comparatively, 3.3% of Graham Corporation shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.
Earnings & Valuation
This table compares Watsco and Graham Corporation’s top-line revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | EBITDA | Earnings Per Share | Price/Earnings Ratio | |
| Watsco | $4.30 billion | 1.15 | $376.63 million | $5.37 | 28.07 |
| Graham Corporation | $91.77 million | 2.14 | $9.63 million | $0.51 | 39.47 |
Watsco has higher revenue and earnings than Graham Corporation. Watsco is trading at a lower price-to-earnings ratio than Graham Corporation, indicating that it is currently the more affordable of the two stocks.
Profitability
This table compares Watsco and Graham Corporation’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Watsco | 4.29% | 14.52% | 9.25% |
| Graham Corporation | 5.47% | 4.93% | 3.68% |
Dividends
Watsco pays an annual dividend of $5.00 per share and has a dividend yield of 3.3%. Graham Corporation pays an annual dividend of $0.36 per share and has a dividend yield of 1.8%. Watsco pays out 93.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Graham Corporation pays out 70.6% of its earnings in the form of a dividend. Watsco has increased its dividend for 3 consecutive years and Graham Corporation has increased its dividend for 4 consecutive years.
Risk & Volatility
Watsco has a beta of 0.83, suggesting that its stock price is 17% less volatile than the S&P 500. Comparatively, Graham Corporation has a beta of 1.05, suggesting that its stock price is 5% more volatile than the S&P 500.
Summary
Watsco beats Graham Corporation on 9 of the 17 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 Graham Corporation
Graham Corporation designs, manufactures and sells critical equipment for the energy, defense and chemical/petrochemical industries. The Company designs and manufactures custom-engineered ejectors, vacuum pumping systems, surface condensers and vacuum systems. It is a nuclear code accredited fabrication and specialty machining company. It supplies components used inside reactor vessels and outside containment vessels of nuclear power facilities. Its equipment is found in applications, such as metal refining, pulp and paper processing, water heating, refrigeration, desalination, food processing, pharmaceutical, heating, ventilating and air conditioning. For the defense industry, its equipment is used in nuclear propulsion power systems for the United States Navy. The Company’s products are used in a range of industrial process applications in energy markets, including petroleum refining, defense, chemical and petrochemical processing, power generation/alternative energy and other.
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