Watsco (WSO): Q1 2026 Earnings Preview Amid Seasonal Challenges and Margin Resilience
Key Takeaways
- Analysts expect Q1 2026 revenue of $1.49 billion, down from $1.53 billion in Q1 2025.
- Consensus EPS estimate is $1.69, a decline from $1.93 reported last year, amid seasonal weakness.
- Watsco's stock has faced pressure post recent misses, down nearly 10% since Q4 2025 earnings.
- First quarter is seasonally soft for HVAC distributors due to lower replacement activity.
- Investors watching gross margins after record full-year 2025 expansion to 28.0%.
- Earnings set for release April 28, 2026, before market open, with conference call at 10:00 a.m. EDT.
Earnings Context and Why It Matters
As the largest North American distributor of HVAC/R equipment and supplies, Watsco (WSO) is approaching its Q1 2026 earnings in a testing environment. The company delivered full-year 2025 revenue of $7.24 billion, a 5% drop year-over-year, yet it posted record gross margins of 28.0% thanks to effective pricing and efficiency measures. In Q4 2025, revenue fell 10% to $1.58 billion, with EPS coming in at $1.68 against expectations of $1.94, which sent the stock down nearly 10% since that February 17, 2026, release. With HVAC equipment volumes still soft and refrigerant transitions ongoing, this report will offer insights into demand recovery and margin durability—key for those following the $74 billion fragmented HVAC/R market, where WSO commands an 18-20% share.
Earnings Expectations
Wall Street's view for Q1 2026 calls for revenue of $1.49 billion, a 2.6% decline from $1.53 billion in the prior-year quarter, according to 11 analysts. Consensus EPS sits at $1.69, down 12.4% from $1.93 a year ago, based on 10 analysts, with estimates ranging from $1.35 to $1.86 for EPS and $1.46 billion to $1.55 billion for sales. Watsco hasn't provided formal guidance, but seasonal trends consistently mark Q1 as the weakest period for HVAC replacements.
From what I see, the pattern of misses is concerning: WSO has fallen short on EPS for four straight quarters—Q4 2025 (-11%), Q3 2025 (-7%), Q2 2025 (-6%), and Q1 2025 (-14%). I'll be paying close attention to gross profit margins, which stood at 28.1% in Q1 2025, HVAC equipment sales (67% of revenue and down 1% last Q1 excluding acquisitions), and operating cash flow. The stock tends to swing post-earnings, as seen in Q4 when volume declines tied to A2L refrigerant shifts drove the reaction.
Market Reaction and Investor Sentiment
Sentiment remains cautious heading into these results after four consecutive EPS misses and Q4's 13% drop in HVAC equipment sales. WSO shares are down nearly 10% since the Q4 release, lagging the S&P 500. Implied volatility points to a potential ±7% move, in line with recent patterns. On the risk side, high interest rates are still dampening residential replacements, alongside A2L transition costs, though continued margin gains could provide a buffer. Analysts hold a moderate buy rating with an average price target of $416, suggesting room for upside.
AI Screener: My Go-To Tool for Efficient Research
In my analysis, I rely on Tickeron’s AI Screener to quickly filter stocks like WSO against peers using technical patterns, fundamentals, and AI signals. It scans thousands of stocks and ETFs with customizable filters for industry, market cap, indicators, and more, surfacing trade ideas and opportunities far faster than manual methods. This has become essential for my data-driven approach, and I also checked it here to gauge how WSO stacks up in the HVAC space.
Forward Outlook and Key Factors to Monitor
Post-Q1, attention will turn to management's take on HVAC demand against economic pressures. Residential equipment, which makes up 67% of sales, softened in 2025 from high rates and refrigerant shifts—stabilization in this area stands out as crucial.
Gross margins continue to shine after reaching a record 28.0% for full-year 2025, fueled by pricing discipline and product mix. One thing I'll monitor is inventory progress, as Q4 hit reduction goals, along with cash flow that reached $570 million annually despite lower sales. The debt-free balance sheet bolsters WSO's buy-and-build approach, including 12 acquisitions since 2019 that added $1.6 billion in sales.
Looking ahead, potential rate cuts could lift housing activity, while Sunbelt expansion and tech upgrades across 690 locations offer tailwinds. Q2, the seasonally strongest quarter, may signal recovery if equipment sales pick up. Keep an eye on SG&A discipline and the dividend, which saw a 10% hike to an annual rate of $13.20.
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Momentum Indicator for WSO turns negative, indicating new downward trend
WSO saw its Momentum Indicator move below the 0 level on September 29, 2026. This is an indication that the stock could be shifting in to a new downward move. Traders may want to consider selling the stock or exploring put options. Tickeron's A.I.dvisor looked at 81 similar instances where the indicator turned negative. In 59 of the 81 cases, the stock moved further down in the following days. The odds of a decline are at 73%.
Technical Analysis (Indicators)
Bearish Trend Analysis
The Moving Average Convergence Divergence Histogram (MACD) for WSO turned negative on September 30, 2026. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 44 similar instances when the indicator turned negative. In 32 of the 44 cases the stock turned lower in the days that followed. This puts the odds of success at 73%.
Following a 3-day decline, the stock is projected to fall further. Considering past instances where WSO declined for three days, the price rose further in 50 of 62 cases within the following month. The odds of a continued downward trend are 70%.
WSO broke above its upper Bollinger Band on September 22, 2026. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.
Bullish Trend Analysis
The RSI Indicator points to a transition from a downward trend to an upward trend -- in cases where WSO's RSI Indicator exited the oversold zone, 18 of 25 resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are 72%.
The Stochastic Oscillator suggests the stock price trend may be in a reversal from a downward trend to an upward trend. 41 of 63 cases where WSO's Stochastic Oscillator exited the oversold zone resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are 65%.
Following a +3.06% 3-day Advance, the price is estimated to grow further. Considering data from situations where WSO advanced for three days, in 242 of 351 cases, the price rose further within the following month. The odds of a continued upward trend are 69%.
The Aroon Indicator entered an Uptrend today. In 99 of 195 cases where WSO Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are 51%.
Fundamental Analysis (Ratings)
The Tickeron Valuation Rating of 8 (best 1 - 100 worst) indicates that the company is seriously undervalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (4.316) is normal, around the industry mean (7.841). P/E Ratio (26.840) is within average values for comparable stocks, (134.538). Projected Growth (PEG Ratio) (1.199) is also within normal values, averaging (2.538). WSO's Dividend Yield (0.040) is considerably higher than the industry average of (0.009). P/S Ratio (1.587) is also within normal values, averaging (3.013).
The Tickeron Seasonality Score of 38 (best 1 - 100 worst) indicates that the company is fair valued in the industry. The Tickeron Seasonality score describes the variance of predictable price changes around the same period every calendar year. These changes can be tied to a specific month, quarter, holiday or vacation period, as well as a meteorological or growing season.
The Tickeron PE Growth Rating for this company is 53 (best 1 - 100 worst), pointing to consistent earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
The Tickeron SMR rating for this company is 55 (best 1 - 100 worst), indicating strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron Price Growth Rating for this company is 77 (best 1 - 100 worst), indicating slightly worse than average price growth. WSO’s price grows at a lower rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron Profit vs. Risk Rating rating for this company is 84 (best 1 - 100 worst), indicating that the returns do not compensate for the risks. WSO’s unstable profits reported over time resulted in significant Drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating rating for the industry is 67, placing this stock worse than average.
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General Information
a distributer of central air conditioning, heating and refrigeration equipment
Industry ElectronicsDistributors
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