3 Reasons to Avoid CARR and 1 Stock to Buy Instead

Since December 2024, Carrier Global has been in a holding pattern, posting a small return of 4% while floating around $72.46.

Is there a buying opportunity in Carrier Global, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Carrier Global Not Exciting?

We're sitting this one out for now. Here are three reasons why you should be careful with CARR and a stock we'd rather own.

1. Slow Organic Growth Suggests Waning Demand In Core Business

Investors interested in HVAC and Water Systems companies should track organic revenue in addition to reported revenue. This metric gives visibility into Carrier Global’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Carrier Global’s organic revenue averaged 2.9% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

2. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Carrier Global’s margin dropped by 5.9 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. Carrier Global’s free cash flow margin for the trailing 12 months was 2.4%.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Carrier Global’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Carrier Global isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 23.6× forward P/E (or $72.46 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Would Buy Instead of Carrier Global

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