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

Analyst Ratings

This is a summary of current recommendations and price targets for AAON and Watsco, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
AAON 0 0 1 0 3.00
Watsco 1 2 3 0 2.33

AAON presently has a consensus target price of $30.00, indicating a potential downside of 9.37%. Watsco has a consensus target price of $161.75, indicating a potential upside of 9.79%. Given Watsco’s higher probable upside, analysts clearly believe Watsco is more favorable than AAON.

Valuation & Earnings

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

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
AAON $383.64 million 4.54 $89.26 million $0.95 34.84
Watsco $4.30 billion 1.12 $376.63 million $5.37 27.44

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

Volatility & Risk

AAON has a beta of 0.96, indicating that its share price is 4% less volatile than the S&P 500. Comparatively, Watsco has a beta of 0.83, indicating that its share price is 17% less volatile than the S&P 500.

Profitability

This table compares AAON and Watsco’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
AAON 13.32% 24.33% 19.21%
Watsco 4.29% 14.52% 9.25%

Institutional & Insider Ownership

66.2% of AAON shares are held by institutional investors. Comparatively, 81.2% of Watsco shares are held by institutional investors. 22.3% of AAON shares are held by company insiders. Comparatively, 13.9% of Watsco shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Dividends

AAON pays an annual dividend of $0.26 per share and has a dividend yield of 0.8%. Watsco pays an annual dividend of $5.00 per share and has a dividend yield of 3.4%. AAON pays out 27.4% of its earnings in the form of a dividend. Watsco pays out 93.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Watsco 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.

Summary

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

AAON Company Profile

AAON, Inc. is engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment consisting of standard, semi-custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps and coils. Its products serve the commercial and industrial new construction and replacement markets. Its rooftop and condensing unit markets consist of units installed on commercial or industrial structures of less than 10 stories in height. Its air handling units, self-contained units, geothermal/water-source heat pumps, chillers, packaged outdoor mechanical rooms and coils are applicable to all sizes of commercial and industrial buildings. The replacement market consists of products installed to replace existing units/components that are worn or damaged.

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.

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