Watsco (NYSE:WSO) & AAON (AAON) Head-To-Head Survey

Watsco (NYSE: WSO) and AAON (NASDAQ:AAON) are both construction companies, but which is the better business? We will contrast the two companies based on the strength of their dividends, analyst recommendations, earnings, institutional ownership, profitability, valuation and risk.

Institutional & Insider Ownership

79.6% of Watsco shares are held by institutional investors. Comparatively, 66.2% of AAON shares are held by institutional investors. 13.9% of Watsco shares are held by company insiders. Comparatively, 22.3% of AAON shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Volatility & Risk

Watsco has a beta of 0.83, suggesting that its stock price is 17% less volatile than the S&P 500. Comparatively, AAON has a beta of 0.96, suggesting that its stock price is 4% less volatile than the S&P 500.

Dividends

Watsco pays an annual dividend of $5.00 per share and has a dividend yield of 3.4%. AAON pays an annual dividend of $0.26 per share and has a dividend yield of 0.8%. 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. AAON pays out 27.4% of its earnings in the form of a dividend. Watsco has increased its dividend for 3 consecutive years. Watsco is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Watsco and AAON’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%
AAON 13.32% 24.33% 19.21%

Analyst Ratings

This is a breakdown of current ratings and recommmendations for Watsco and AAON, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Watsco 1 2 3 0 2.33
AAON 0 0 1 0 3.00

Watsco currently has a consensus price target of $161.75, suggesting a potential upside of 11.35%. AAON has a consensus price target of $30.00, suggesting a potential downside of 5.21%. Given Watsco’s higher probable upside, equities analysts plainly believe Watsco is more favorable than AAON.

Valuation and Earnings

This table compares Watsco and AAON’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Watsco $4.30 billion 1.10 $376.63 million $5.37 27.05
AAON $383.64 million 4.34 $89.26 million $0.95 33.32

Watsco has higher revenue and earnings than AAON. Watsco is trading at a lower price-to-earnings ratio than AAON, indicating that it is currently the more affordable of the two stocks.

Summary

AAON beats Watsco on 9 of the 17 factors compared between the two stocks.

Watsco Company Profile

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.

AAON Company Profile

AAON, Inc. is engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment consisting of standard, semi-custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps and coils. Its products serve the commercial and industrial new construction and replacement markets. Its rooftop and condensing unit markets consist of units installed on commercial or industrial structures of less than 10 stories in height. Its air handling units, self-contained units, geothermal/water-source heat pumps, chillers, packaged outdoor mechanical rooms and coils are applicable to all sizes of commercial and industrial buildings. The replacement market consists of products installed to replace existing units/components that are worn or damaged.

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