Time to Turn the Heat Up: This HVAC Provider Is on Fire

Winter is coming.

It’s a good time for a tune-up to the old furnace unit, as the last thing we want before the winter cold hits is to find out our heating system has an in issue.

It’s also a good time to evaluate our portfolios as the year comes to a close. Just as our outer world experiences the ebbs and flows of nature, stocks move in and out of favor as earnings cycles rotate over time. As temperatures change, we adjust our living conditions to meet our needs. And as earnings estimates shift, we must adjust our exposure to take advantage of the new trends.

It just so happens that as we close out the final month of fall, one related stock is outperforming and showing relative strength. This company is witnessing positive earnings estimate revisions, which our research has shown to be the most powerful force impacting stock prices.

HVAC Provider Soars to New Heights

Comfort Systems USA is a provider of heating, ventilation, and air conditioning systems. The company serves building owners and developers, general contractors, engineers, and property managers. They also offer plumbing, mechanical and electrical installation, fire protection, and maintenance services.

The stock’s appeal goes beyond the surface level. Comfort Systems is an umbrella company, composed of more than 45 operating companies in over 170 locations across the United States. They design and install HVAC systems for data centers and new buildings, as well as replace outdated systems in existing establishments.

The Houston-based company has become an AI data center cooling play, as these data centers have significant air conditioning needs. Comfort Systems USA leverages artificial intelligence in two main ways: internally to improve operational efficiency, and externally as a key infrastructure provider for the AI data center industry. 

It utilizes an AI-powered platform called Aquant to create a vast, searchable knowledge database based on the collective expertise of over 2,400 technicians. The Aquant system's AI actively aids technicians in real-time problem-solving, which has helped the company achieve more efficient first-time fixes, reduce resolution costs by 49%, and improve overall technician productivity.

Externally, Comfort Systems employs a method referred to as immersion cooling. This method uses innovative systems for precise temperature management to allow servers to be packed closer together, saving on energy consumption.

As a result of its place in the AI value chain, the company’s backlog has been swelling thanks in large part to demand for data centers, recently reaching over $9 billion for the first time – an increase of $3.4 billion from when the year began.

And the stock price has reflected the fundamental growth. Shares skyrocketed more than 200% off the April lows, outpacing the major indexes by a wide margin. Notice the steady trend of higher highs, leading to sustained outperformance and rising moving averages.

The Zacks Rundown

A Zacks Rank #1 (Strong Buy) stock, Comfort Systems USA FIX has surpassed earnings estimates in each of the past four quarters. In fact, the AI infrastructure provider has established a very healthy track record of beating earnings estimates over time, with only two quarterly misses over the past five years.

Just a few short weeks ago, Comfort Systems reported third-quarter earnings of $8.25 per share, which represented a 33.06% beat versus the Zacks Consensus Estimate. Earnings grew 102% from the same period last year on 35.4% higher revenues. Comfort Systems posted a trailing four-quarter average earnings surprise of 30.4%, showcasing its ability to consistently overdeliver.

And we can see below that analysts covering FIX are mainly in agreement in terms of revisions and have been raising earnings estimates across the board. Estimates for the fourth quarter have been increased by 20.04% in the past 60 days. The Q4 Zacks Consensus Estimate now stands at $6.77/share, reflecting potential growth of over 65% relative to the year-ago period. Revenues in the fourth quarter are projected to climb more than 22% to $2.28 billion.

Bottom Line

Strong fundamental characteristics and an appealing technical picture are exactly the types of trends we want to look for when narrowing down our list of potential stocks.

As the winter cold emerges, make sure to keep an eye on this HVAC provider. This stock is not only ranked highly by our Zacks Rank system, but it’s also handily outperforming the market off the April lows.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research