Critical Comparison: Trane Technologies (NYSE:TT) and Watsco (NYSE:WSO.B)

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

Dividends

Watsco pays an annual dividend of $12.00 per share and has a dividend yield of 2.5%. Trane Technologies pays an annual dividend of $3.76 per share and has a dividend yield of 0.8%. 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. Trane Technologies pays out 31.3% of its earnings in the form of a dividend. Trane Technologies has increased its dividend for 5 consecutive years.

Profitability

This table compares Watsco and Trane Technologies’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Watsco	6.98%	17.13%	11.86%
Trane Technologies	13.47%	36.10%	13.13%

Analyst Ratings

This is a summary of current recommendations for Watsco and Trane Technologies, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Watsco	0	0	0	0	0.00
Trane Technologies	1	7	7	1	2.50

Trane Technologies has a consensus target price of $441.40, indicating a potential downside of 1.32%. Given Trane Technologies’ stronger consensus rating and higher possible upside, analysts plainly believe Trane Technologies is more favorable than Watsco.

Institutional & Insider Ownership

0.1% of Watsco shares are owned by institutional investors. Comparatively, 83.0% of Trane Technologies shares are owned by institutional investors. 13.8% of Watsco shares are owned by insiders. Comparatively, 0.4% of Trane Technologies shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Valuation & Earnings

This table compares Watsco and Trane Technologies”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Watsco	$7.62 billion	2.51	$536.29 million	$13.01	36.24
Trane Technologies	$19.84 billion	5.03	$2.57 billion	$12.02	37.21

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

Risk and Volatility

Watsco has a beta of 0.59, suggesting that its stock price is 41% less volatile than the S&P 500. Comparatively, Trane Technologies has a beta of 1.15, suggesting that its stock price is 15% more volatile than the S&P 500.

Summary

Trane Technologies beats Watsco on 15 of the 18 factors compared between the two stocks.

About Watsco

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

About Trane Technologies

Trane Technologies plc, together with its subsidiaries, designs, manufactures, sells, and services of solutions for heating, ventilation, air conditioning, custom, and custom and transport refrigeration in Ireland and internationally. It offers air conditioners, exchangers, and handlers; airside and terminal devices; air sourced heat pumps, auxiliary power units; chillers; coils and condensers; gensets; dehumidifiers; ductless; furnaces; home automation products; humidifiers; indoor air quality assessments and related products; large and light commercial unitary products; refrigerant reclamation products; thermostats/controls; transport heater products; variable refrigerant flow products; and water source heat pumps. The company also provides building management, telematic, control, energy efficiency and infrastructure program, geothermal, thermal energy, thermostats, rate chambers, package heating and cooling, temporary heating and cooling, and unitary systems; bus, rail, and multi-pipe heating, ventilation, and air conditioning systems; and container, diesel-powered, truck, industrial, rail, self-powered truck, trailer, and vehicle-powered truck refrigeration and air filtration systems, as well as aftermarket and OEM parts and supplies. In addition, it offers energy and facility management, installation and performance contracting, repair and maintenance, and rental services. It markets and sells its products under the Trane and Thermo King brands through sales offices, distributors, and dealers; and through sales and service companies with a supporting chain of distributors. The company was formerly known as Ingersoll-Rand Plc and changed its name to Trane Technologies plc in March 2020. Trane Technologies plc was founded in 1885 and is headquartered in Swords, Ireland.