Watsco (NYSE:WSO) vs. Comfort Systems USA (NYSE:FIX) Critical Review

Comfort Systems USA (NYSE:FIX) and Watsco (NYSE:WSO) are both large-cap construction companies, but which is the better stock? We will compare the two businesses based on the strength of their analyst recommendations, valuation, earnings, dividends, institutional ownership, risk and profitability.

Institutional & Insider Ownership

96.5% of Comfort Systems USA shares are owned by institutional investors. Comparatively, 89.7% of Watsco shares are owned by institutional investors. 1.6% of Comfort Systems USA shares are owned by insiders. Comparatively, 12.8% of Watsco shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Analyst Recommendations

This is a breakdown of recent ratings for Comfort Systems USA and Watsco, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Comfort Systems USA	0	0	5	0	3.00
Watsco	0	6	1	0	2.14

Comfort Systems USA presently has a consensus target price of $572.60, indicating a potential upside of 3.79%. Watsco has a consensus target price of $484.17, indicating a potential upside of 2.20%. Given Comfort Systems USA’s stronger consensus rating and higher possible upside, research analysts clearly believe Comfort Systems USA is more favorable than Watsco.

Profitability

This table compares Comfort Systems USA and Watsco’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Comfort Systems USA	8.13%	36.35%	13.30%
Watsco	6.98%	17.13%	11.86%

Dividends

Comfort Systems USA pays an annual dividend of $1.80 per share and has a dividend yield of 0.3%. Watsco pays an annual dividend of $12.00 per share and has a dividend yield of 2.5%. Comfort Systems USA pays out 10.8% of its earnings in the form of a dividend. Watsco pays out 92.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Comfort Systems USA has raised its dividend for 13 consecutive years and Watsco has raised its dividend for 13 consecutive years.

Risk and Volatility

Comfort Systems USA has a beta of 1.51, suggesting that its stock price is 51% more volatile than the S&P 500. Comparatively, Watsco has a beta of 1.04, suggesting that its stock price is 4% more volatile than the S&P 500.

Earnings and Valuation

This table compares Comfort Systems USA and Watsco”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Comfort Systems USA	$7.03 billion	2.77	$522.43 million	$16.67	33.10
Watsco	$7.62 billion	2.52	$536.29 million	$13.01	36.41

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

Summary

Comfort Systems USA beats Watsco on 11 of the 16 factors compared between the two stocks.

About Comfort Systems USA

Comfort Systems USA, Inc., together with its subsidiaries, provides mechanical and electrical installation, renovation, maintenance, repair, and replacement services for the mechanical and electrical services industry in the United States. It operates through two segments, Mechanical and Electrical. The company offers heating, ventilation, and air conditioning systems, as well as plumbing, electrical, piping and controls, off-site construction, monitoring, and fire protection. It also engages in the design, engineering, integration, installation, and start-up of mechanical, electrical, and plumbing (MEP) and related systems in new buildings; and renovation, expansion, maintenance, monitoring, repair, and replacement of MEP systems in existing buildings. In addition, the company provides remote monitoring of power usage, temperature, pressure, humidity and air flow for MEP and other building systems. It serves building owners and developers, general contractors, architects, consulting engineers, and property managers in the commercial, industrial, and institutional MEP markets. Comfort Systems USA, Inc. was founded in 1917 and is headquartered in Houston, Texas.

About Watsco

Watsco, Inc., together with its subsidiaries, engages in the distribution of air conditioning, heating, refrigeration equipment, and related parts and supplies in the United States and internationally. 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. Watsco, Inc. was incorporated in 1956 and is headquartered in Miami, Florida.