Watsco (WSO): Why HVAC Distribution Could Be a Long-Term Investment

During their recent episode, Taylor, Carlisle, and Todd Wenning discussed Watsco (WSO): Why HVAC Distribution Could Be a Long-Term Investment. Here's an excerpt from the podcast:

[Todd]

So they have a vesting schedule where they, I think it's, they don't even know how much stock that they have until they reach retirement age. So if they leave, so if you're like a senior executive and you're like, hey, 15 year, great run, I'm going to jump to a CEO role somewhere else. They give up all that vesting.

So you have to retire with the company above, I think it's 65, that you have to, you have to be at least 65 and retire with the company before you can use that vesting schedule. So there's just this feeling like, hey, you know, if the better I do now, the more my, my equity comp builds into retirement. And so it does, it is, it is interesting.

They have a big dividend as well. And that is, I believe, to help appeal to potential companies they want to acquire, right? So if they acquire an HVAC distributor that, you know, gets the ones that get bought out, but they can get a dividend, right?

They can get, take shares and they can, they can get a dividend to help supplement their income. So I think that is one of the things that they use as a, as a, as a carrot, so to say for the acquired companies that they're looking for.

[Tobias]

And this is Watsco. What's the business? What's the, what's it about?

[Todd]

HVAC distribution. So, you know, they're primarily in the sunbelt of the U.S. Air conditioning, you know, unfortunately due to climate change, this is going to become increasingly inelastic. You know, the HVAC breaks in your house, you have to get a fix, especially if you live in the sunbelt, there's, there's no two ways about it.

And that's increasingly true.

[Jake]

Or you get divorced. Those are your two options. Right, right.

[Todd]

Yeah. There's no chance you're not fixing the HVAC. And so to me, that's, that is a no brainer in terms of something that's not going to change.

So we were talking before we jumped on about all the change, you know, that we're seeing in the economy from AI. And to me, that's one area of the market that is just not going to change. There might be the tech stack that the HVAC is using to process the logistics and things might change.

But in terms of the end product demand, HVAC is not going anywhere for a very long time, unless there's some innovation that comes along that renders it obsolete, which I don't think is anywhere close to happening.

[Jake]

We might have to go backwards on some of this stuff when it did a bunch of refrigerator units that were online connected and all over Europe right now have gotten packed and shut down.

[Todd]

That's right. Yeah. Yeah.

The more our, our houses are connected by Wi-Fi, the, I guess, the more concern there is for that sort of thing happening to the average human average, average resident.

[Jake]

Do you really need your oven connected to the internet? No, there's no, there's no reason for that whatsoever.