As of June 9, 2025, Watsco Inc's estimated intrinsic value ranges from $175.59 to $724.94 per share, depending on the valuation methodology applied.
| Valuation Method | Fair Value (USD) | Implied Upside/Downside |
|---|---|---|
| Discounted Cash Flow (10Y) | $724.94 | +62.7% |
| Discounted Cash Flow (5Y) | $543.90 | +22.1% |
| Dividend Discount Model (Multi-Stage) | $499.85 | +12.2% |
| Dividend Discount Model (Stable) | $175.59 | -60.6% |
| Earnings Power Value | $197.36 | -55.7% |
Is Watsco Inc (WSO) undervalued or overvalued?
With the current market price at $445.44, the stock appears to be moderately undervalued.
Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Watsco Inc's intrinsic value, including:
The cost of capital is a critical factor in valuation models, representing the required return for investors.
| WACC Component | Low | High |
|---|---|---|
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.84 | 0.89 |
| Cost of equity | 7.8% | 9.8% |
| Cost of debt | 4.5% | 8.7% |
| Tax rate | 19.5% | 20.0% |
| Debt/Equity ratio | 0 | 0 |
| After-tax WACC | 7.7% | 9.8% |
Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:
| DCF Model | Fair Value | Enterprise Value | % from Terminal Value |
|---|---|---|---|
| 5-Year Growth | $544 | $21,616M | 75.9% |
| 10-Year Growth | $725 | $28,949M | 59.6% |
| 5-Year EBITDA | $548 | $21,773M | 76.1% |
| 10-Year EBITDA | $734 | $29,311M | 60.1% |
The DDM values a company based on its expected future dividend payments. We used two approaches:
EPV assesses a company's value based on its current normalized earnings power, assuming no growth.
| EPV Component | Value |
|---|---|
| Normalized Earnings | $656M |
| Discount Rate (WACC) | 9.8% - 7.7% |
| Enterprise Value | $6,683M - $8,471M |
| Net Debt | $(418)M |
| Equity Value | $7,101M - $8,889M |
| Outstanding Shares | 41M |
| Fair Value | $175 - $219 |
| Selected Fair Value | $197.36 |
| Metric | Value |
|---|---|
| Market Capitalization | $18045M |
| Enterprise Value | $17627M |
| Trailing P/E | 34.09 |
| Forward P/E | 21.25 |
| Trailing EV/EBITDA | 11.55 |
| Current Dividend Yield | 241.51% |
| Dividend Growth Rate (5Y) | 12.36% |
| Debt-to-Equity Ratio | 0.00 |
To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:
| Valuation Method | Weight | Weighted Value |
|---|---|---|
| Discounted Cash Flow (10Y) | 30% | $217.48 |
| Discounted Cash Flow (5Y) | 25% | $135.98 |
| Dividend Discount Model (Multi-Stage) | 20% | $99.97 |
| Dividend Discount Model (Stable) | 15% | $26.34 |
| Earnings Power Value | 10% | $19.74 |
| Weighted Average | 100% | $499.50 |
Based on our comprehensive valuation analysis, Watsco Inc's weighted average intrinsic value is $499.50, which is approximately 12.1% above the current market price of $445.44.
Key investment considerations:
Given these factors, we believe Watsco Inc is currently moderately undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.