On September 14, Watsco (NYSE:WSO) agreed to acquire The Granite Group, a plumbing and HVAC distributor generating roughly $500 million in annual sales across seven Northeast states. It is the second deal Watsco has closed in 2026, following the June acquisition of Jackson Supply Company, and it signals a company still hungry for growth even as its own numbers cooled off this year.
A Growth Playbook That Keeps Working
The Granite Group brings real scale to the table. Founded in 1971 and based in Concord, New Hampshire, the third-generation, family-led business serves about 11,000 customers from 82 locations across New Hampshire, Vermont, Maine, Massachusetts, Connecticut, Rhode Island and New York, stocking roughly 29,000 SKUs from more than 450 vendors. It has grown sales at a 10% compounded annual rate since 2010, and under the terms of the deal, it will keep operating independently under CEO Bill Condron, the same structure Watsco has used across 73 acquisitions since 1989.
Just three months earlier, Watsco closed on Jackson Supply, a $230 million Sunbelt HVAC distributor spanning 25 locations, and management has said it is still hunting in a $74 billion North American distribution market where it holds a relatively small share. Watsco is funding this expansion from a position of strength. The company carries $464 million in cash and no debt, and in April it raised its annual dividend 10% to $13.20 per share, extending a streak of 52 consecutive years of payouts. Its technology push is paying off too. E-commerce sales climbed 13% in the first half of 2026 to reach $2.7 billion over the trailing twelve months, 37% of total sales, while its OnCallAir quoting platform generated $1.9 billion in gross merchandise value over the same trailing period, up 15%.
Margins Tell A Different Story
The growth story sits alongside a rougher earnings picture. Second-quarter revenue rose just 2% to $2.1 billion, but gross profit fell 4% to $579 million as gross margin slipped to 27.5% from 29.3% a year earlier. Operating income dropped 12% to $238 million, and earnings per share fell 12% to $4.00. The company attributed much of that gap, about 130 basis points, to 2025 pricing actions that had captured outsized inflation and tariff benefits, benefits that did not repeat this year.
The pattern holds through the first half: revenue is up only 1% to $3.6 billion year to date, while operating income is down 9% to $349 million and EPS is down 9% to $5.92. Operating cash flow used $21 million in the first six months, though that is a $164 million improvement from the $185 million used a year earlier.
Where Wall Street Stands
Hedge fund ownership climbed from 34 funds to 40 in the most recent quarter, a sign institutional interest is building even as reported earnings soften. The stock trades at a forward P/E of 21.19 as of September 21, a multiple that assumes profitability recovers from this year’s dip rather than settles at a new, lower level.
Two Stories, One Stock
Watsco is running its acquisition playbook at full speed, adding density and diversification through Granite and Jackson Supply while funding it all without touching the balance sheet. At the same time, margins and earnings have moved in the opposite direction of revenue for two straight quarters. For the growth story to carry the stock, Granite and Jackson need to scale the way Watsco’s past acquisitions have. For the margin pressure to matter less, pricing and gross margin need to stabilize now that last year’s unusual tailwind has worked its way through the numbers.
READ NEXT: 10 Best Future Stocks to Buy Under $10 and 12 Best Performing Semiconductor Stocks to Invest In.
