Watsco (NYSE: WSO) and Graham Corporation (NYSE:GHM) are both construction companies, but which is the superior stock? We will contrast the two companies based on the strength of their risk, analyst recommendations, valuation, profitabiliy, dividends, institutional ownership and earnings.

Dividends

Watsco pays an annual dividend of $5.00 per share and has a dividend yield of 3.3%. Graham Corporation pays an annual dividend of $0.36 per share and has a dividend yield of 1.8%. Watsco pays out 97.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Graham Corporation pays out 70.6% of its earnings in the form of a dividend. Watsco has raised its dividend for 3 consecutive years and Graham Corporation has raised its dividend for 4 consecutive years.

Valuation & Earnings

This table compares Watsco and Graham Corporation’s gross 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 29.49
Graham Corporation $91.77 million 2.12 $9.63 million $0.51 39.14

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

Analyst Recommendations

This is a breakdown of recent ratings and recommmendations for Watsco and Graham Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Watsco 2 3 3 0 2.13
Graham Corporation 0 0 1 0 3.00

Watsco presently has a consensus price target of $149.83, suggesting a potential downside of 0.77%. Graham Corporation has a consensus price target of $30.00, suggesting a potential upside of 50.30%. Given Graham Corporation’s stronger consensus rating and higher possible upside, analysts plainly believe Graham Corporation is more favorable than Watsco.

Profitability

This table compares Watsco and Graham Corporation’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%
Graham Corporation 5.47% 4.93% 3.68%

Volatility & Risk

Watsco has a beta of 0.84, suggesting that its stock price is 16% less volatile than the S&P 500. Comparatively, Graham Corporation has a beta of 1.04, suggesting that its stock price is 4% more volatile than the S&P 500.

Institutional and Insider Ownership

80.5% of Watsco shares are owned by institutional investors. Comparatively, 75.1% of Graham Corporation shares are owned by institutional investors. 13.9% of Watsco shares are owned by company insiders. Comparatively, 3.3% of Graham Corporation shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Summary

Watsco beats Graham Corporation 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.

Graham Corporation Company Profile

Graham Corporation designs, manufactures and sells critical equipment for the energy, defense and chemical/petrochemical industries. The Company designs and manufactures custom-engineered ejectors, vacuum pumping systems, surface condensers and vacuum systems. It is a nuclear code accredited fabrication and specialty machining company. It supplies components used inside reactor vessels and outside containment vessels of nuclear power facilities. Its equipment is found in applications, such as metal refining, pulp and paper processing, water heating, refrigeration, desalination, food processing, pharmaceutical, heating, ventilating and air conditioning. For the defense industry, its equipment is used in nuclear propulsion power systems for the United States Navy. The Company’s products are used in a range of industrial process applications in energy markets, including petroleum refining, defense, chemical and petrochemical processing, power generation/alternative energy and other.

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