Head to Head Review: Watsco (NYSE:WSO) vs. Ferguson (NASDAQ:FERG)

Watsco (NYSE:WSO) and Ferguson (NASDAQ:FERG) are both large-cap construction companies, but which is the superior stock? We will contrast the two companies based on the strength of their dividends, risk, earnings, profitability, valuation, analyst recommendations and institutional ownership.

Earnings & Valuation

This table compares Watsco and Ferguson’s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Watsco	$7.27 billion	1.98	$601.17 million	$15.15	24.29
Ferguson	$29.73 billion	1.08	$1.89 billion	$9.12	17.25

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

Volatility & Risk

Watsco has a beta of 0.89, indicating that its stock price is 11% less volatile than the S&P 500. Comparatively, Ferguson has a beta of 1.15, indicating that its stock price is 15% more volatile than the S&P 500.

Dividends

Watsco pays an annual dividend of $9.80 per share and has a dividend yield of 2.7%. Ferguson pays an annual dividend of $3.00 per share and has a dividend yield of 1.9%. Watsco pays out 64.7% of its earnings in the form of a dividend. Ferguson pays out 32.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Watsco has raised its dividend for 10 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 Ferguson’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Watsco	8.14%	22.66%	14.21%
Ferguson	6.35%	41.58%	13.13%

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Watsco and Ferguson, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Watsco	1	3	3	0	2.29
Ferguson	1	2	8	0	2.64

Watsco currently has a consensus target price of $373.78, suggesting a potential upside of 1.58%. Ferguson has a consensus target price of $164.20, suggesting a potential upside of 4.40%. Given Ferguson’s stronger consensus rating and higher possible upside, analysts clearly believe Ferguson is more favorable than Watsco.

Institutional & Insider Ownership

89.5% of Watsco shares are owned by institutional investors. 13.3% of Watsco shares are owned by company insiders. Comparatively, 0.1% of Ferguson shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Summary

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

About Watsco

Watsco, Inc., together with its subsidiaries, engages in the distribution of air conditioning, heating, refrigeration equipment, and related parts and supplies. The company distributes equipment, including residential ducted and ductless air conditioners, such as gas, electric, and oil furnaces; commercial air conditioning and heating equipment systems; and other specialized equipment. It also offers parts comprising replacement compressors, evaporator coils, motors, and other component parts; and supplies, such as thermostats, insulation materials, refrigerants, ductworks, grills, registers, sheet metals, tools, copper tubing, concrete pads, tapes, adhesives, and other ancillary supplies, as well as plumbing and bathroom remodeling supplies. The company serves contractors and dealers that service the replacement and new construction markets for residential and light commercial central air conditioning, heating, and refrigeration systems. It operates in the United States, Canada, Mexico, and Puerto Rico, as well as exports its products to Latin America and the Caribbean Basin. Watsco, Inc. was founded in 1945 and is headquartered in Miami, Florida.

About Ferguson

Ferguson plc distributes plumbing and heating products in the United States and Canada. It offers plumbing and heating solutions to customers in the residential, commercial, civil/infrastructure, and industrial end markets. The company also provides expertise, solutions, and products, including infrastructure, plumbing, appliances, fire, fabrication, and others, as well as heating, ventilation, and air conditioning products under the Ferguson brand name. In addition, it supplies pipes, valves, fittings, plumbing supplies, water and wastewater treatment products, and refrigeration products under Wolseley brand name. Further, the company provides after-sales support comprising warranty, credit, project-based billing, returns, maintenance, repair, and operations support. It sells its products through wholesale distributors, supply houses, retail enterprises, and online. Ferguson plc was founded in 1953 and is headquartered in Wokingham, the United Kingdom.