AAON (NASDAQ: AAON) and Watsco (NYSE:WSO) are both construction companies, but which is the superior investment? We will contrast the two businesses based on the strength of their risk, analyst recommendations, profitability, institutional ownership, valuation, earnings and dividends.
Earnings and Valuation
This table compares AAON and Watsco’s top-line revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | EBITDA | Earnings Per Share | Price/Earnings Ratio | |
| AAON | $383.64 million | 4.34 | $89.26 million | $0.95 | 33.32 |
| Watsco | $4.30 billion | 1.10 | $376.63 million | $5.37 | 27.05 |
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.
Volatility and Risk
AAON has a beta of 0.96, meaning that its stock price is 4% less volatile than the S&P 500. Comparatively, Watsco has a beta of 0.83, meaning that its stock price is 17% less volatile than the S&P 500.
Dividends
AAON pays an annual dividend of $0.26 per share and has a dividend yield of 0.8%. Watsco pays an annual dividend of $5.00 per share and has a dividend yield of 3.4%. AAON pays out 27.4% of its earnings in the form of a dividend. 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 has raised its dividend for 3 consecutive years.
Insider and Institutional Ownership
66.2% of AAON shares are owned by institutional investors. Comparatively, 79.6% of Watsco shares are owned by institutional investors. 22.3% of AAON shares are owned by insiders. Comparatively, 13.9% of Watsco 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.
Profitability
This table compares AAON and Watsco’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| AAON | 13.32% | 24.33% | 19.21% |
| Watsco | 4.29% | 14.52% | 9.25% |
Analyst Recommendations
This is a breakdown of recent ratings and price targets for AAON and Watsco, as provided by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| AAON | 0 | 0 | 1 | 0 | 3.00 |
| Watsco | 1 | 2 | 3 | 0 | 2.33 |
AAON presently has a consensus target price of $30.00, indicating a potential downside of 5.21%. Watsco has a consensus target price of $161.75, indicating a potential upside of 11.35%. Given Watsco’s higher possible upside, analysts clearly believe Watsco is more favorable than AAON.
Summary
AAON beats Watsco on 10 of the 17 factors compared between the two stocks.
About AAON
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.
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.
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