Baird Upgrades Watsco to 'Outperform'

Analyst David Manthey sees strong earnings growth over the next two years for the air-conditioning distributor

Baird upgraded Watsco (WSO ) to outperform from neutral.

Analyst David Manthey says his upgrade of Watsco, an air conditioning and refrigeration equipment distributor, is based on the company's solid structural improvements and the potential for 15% to 20% earnings growth over the next two years. He says his new $30 price target is based on shares trading at 16 times the forward p-e of his 2005 $1.85 estimate.

While this is a premium to historical valuation parameters, Manthey believes the premium is warranted based on demonstrated improvement and the potential for record-high EBIT margins in the near future. Overall, he's encouraged by the company's recent results and the propects for continued improvement.

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