Risk Reward Update

Research evidence excerpt

Risk Reward Update

UpdateM

RiskRisk RewardReward– Watsco- WatscoInc (WSO.N) Inc (WSO.N)

Achieved Distributor Nirvana But End Markets Screen for Risk

PRICE TARGET $405.00 EQUAL-WEIGHT THESIS

Our $405 price target is based on ~27x Base Case 2027 EPS of $15.33. This multiple implies a ▪WSO's scale and willingness to invest in

~40% premium to peers, generally in line with WSO's long-term average premium. tech-driven customer solutions position it

for long term share gains vs a fragmented $422.94

and under-resourced competitor base that

Consensus Price Target Distribution $370.00 $485.00 lacks the ability to invest in customer

MS PT

relationships. While the flywheel is powerfulSource: Refinitiv, Morgan Stanley Research Mean Morgan Stanley Estimates and durable, we believe this is reflected in

valuation, with shares trading at a 50%+

SPX premium.

RISK REWARD CHART ▪We support its ability to outgrow the

market, but see downside to market growth

expectations given demand softness and

USD

$515.00$515.00(+36.34%)$515.00(+36.34%)(+36.34%) replacement cycle headwinds. That said, the

GM story remains underappreciated,

supported by a favorable sales mix towards

480 higher margin products, tariff driven pricing

$405.00$405.00(+7.22%)$405.00(+7.22%)(+7.22%) tailwinds, and self help initiatives.

$377.73$377.73$377.73

Consensus Rating Distribution

240 $285.00$285.00(-24.55%)$285.00(-24.55%)(-24.55%) 13% Overweight

75% Equal-weight

13% Underweight

MS Rating

Source: Refinitiv, Morgan Stanley Research

JUL '25 JAN '26 JUL '26 JUL '27

Risk Reward ThemesKey: Historical Stock Performance Current Stock Price Price Target

Secular Growth: Negative

Self-help: Positive

View descriptions of Risk Rewards Themes here

BULL CASE $515.00 BASE CASE $405.00 BEAR CASE $285.00