Watsco Closes Out a Record Fiscal 2022, but We Maintain Our Cautious Outlook; Shares Expensive

Shares of Watsco surged intraday on Feb. 16 after the narrow-moat-rated distributor of heating, ventilation, air-conditioning (or, HVAC), and refrigeration products reported another record quarterly financial performance. Fourth-quarter revenue increased approximately 5% year over year (but sales of $1.58 billion fell about 2% shy of the FactSet consensus estimate), adjusted operating margin remained well above prepandemic levels (8.9% compared with fourth-quarter 2019’s 4.9%), and adjusted EPS increased 16% year over year to $2.35 (beating consensus by approximately 11%).