Comparing Watsco (WSO) & Lennox International (LII)

Watsco (NYSE: WSO) and Lennox International (NYSE:LII) are both mid-cap construction companies, but which is the better stock? We will contrast the two businesses based on the strength of their earnings, valuation, risk, institutional ownership, profitabiliy, analyst recommendations and dividends.

Valuation and Earnings

This table compares Watsco and Lennox International’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Watsco $4.24 billion 1.16 $364.60 million $5.12 29.51
Lennox International $3.72 billion 2.19 $530.80 million $6.77 28.22

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

Dividends

Watsco pays an annual dividend of $4.20 per share and has a dividend yield of 2.8%. Lennox International pays an annual dividend of $1.72 per share and has a dividend yield of 0.9%. Watsco pays out 82.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Lennox International pays out 25.4% of its earnings in the form of a dividend. Watsco has increased its dividend for 5 consecutive years and Lennox International has increased its dividend for 3 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 Lennox International’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Watsco 4.13% 13.81% 8.94%
Lennox International 7.97% 1,371.49% 16.58%

Insider and Institutional Ownership

79.2% of Watsco shares are owned by institutional investors. Comparatively, 68.5% of Lennox International shares are owned by institutional investors. 13.8% of Watsco shares are owned by insiders. Comparatively, 3.6% of Lennox International shares are owned by 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.

Risk and Volatility

Watsco has a beta of 0.82, suggesting that its stock price is 18% less volatile than the S&P 500. Comparatively, Lennox International has a beta of 1.18, suggesting that its stock price is 18% more volatile than the S&P 500.

Analyst Ratings

This is a summary of current ratings for Watsco and Lennox International, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Watsco 2 2 3 0 2.14
Lennox International 1 6 1 0 2.00

Watsco presently has a consensus target price of $147.67, indicating a potential downside of 2.27%. Lennox International has a consensus target price of $166.75, indicating a potential downside of 12.72%. Given Watsco’s stronger consensus rating and higher possible upside, equities research analysts clearly believe Watsco is more favorable than Lennox International.

Summary

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

Watsco Company Profile

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.

Lennox International Company Profile

Lennox International Inc. is a provider of climate control solutions. The Company designs, manufactures and markets a range of products for the heating, ventilation, air conditioning and refrigeration (HVACR) markets. It operates through three segments: Residential Heating & Cooling; Commercial Heating & Cooling, and Refrigeration. It manufactures and markets a range of furnaces, air conditioners, heat pumps, packaged heating and cooling systems, equipment and accessories to manage indoor air quality, comfort control products, replacement parts and supplies and related products for both the residential replacement and new construction markets in North America. It manufactures and sells unitary heating and cooling equipment used in light commercial applications, such as low-rise office buildings, restaurants, retail centers, churches and schools. It manufactures and markets equipment for the global commercial refrigeration markets under the Heatcraft Worldwide Refrigeration name.

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