It seems like extreme weather conditions are more and more
prevalent. Some call it global warming /climate change or
perhaps it's simply a growing population that is more plugged in
than ever and reporting everything they see.
While global climate change in debatable, population growth
and urban sprawl is not.
The increasing population and global distribution of wealth
through increased trade and e-commerce is helping to fuel both
the residential and commercial housing markets as well as
construction and expansion of industrial and commercial
structures of all times, not to mention the companies that
maintain those buildings.
Today's Bull of the Day is a unique stock that is a derivative
play on the housing / economic recovery and the need for more
creature comforts in the home and workplace (or at the very least
basic heating and air conditioning).
No Place Like Home (and work)
Comfort Systems USA
is more than your local HVAC Company; they are a nationally
integrated heating, ventilation and cooling (HVAC) business that
offers solutions for homeowners as well as commercial
applications. In fact, residential income is just a small
part of their commerce.
Comfort Systems estimates that there are over 35,000 different
companies that make up the highly fragmented HVAC field here in
the U.S.. Their goal is to consolidate and economize this
space and offer complete, quality solutions for consumers and
Essentially they have partnered with the best and brightest
companies around the country and are continuously in the process
of building a seamless network between them to better serve the
The market of their customers are comprised of
manufacturers/distributors (25%), healthcare (15%) and education
(20%), with government and office buildings adding another 20% to
FIX's revenues were actually down slightly versus the same
quarter last year, but profits rose 20%. Shares are up
roughly 40% in the last year.
Over the past five years, gross margin peaked at 20.0% and
averaged 17.6%. Operating margin peaked at 6.0% and averaged
3.3%. Net margin peaked at 3.8% and averaged 1.2%.
TTM gross margin is 16.3%, 130 basis points worse than the
five-year average. TTM operating margin is 2.2%, 110 basis points
worse than the five-year average. TTM net margin is 1.3%, 10
basis points better than the five-year average.
Shares currently trade at 27 times forward earnings and carry
a PEG ratio of 4, which are both on the high side and no doubt
carry more risk than your average S&P 500 stock.
Comfort Systems also trades VERY light volume, which is another
risk to consider before investing.
While this isn't the best looking fundamental picture out
there, I find their business model compelling enough to mention
and I know that maintenance contracts on aging HVAC systems carry
big margin, which could help FIX. All the new construction
over the last decade placed many new systems on in service, and
while FIX captured some of this, the bigger money will be in
maintaining these systems that are coming up in age.
Companies that are needing to stabilize costs in this weak
economic recovery may opt for HVAC contracts to maintain their
systems, adding to revs for FIX.
Earnings Heating Up?
With record high temperatures here in the U.S. and companies'
earnings stable, HVAC expenditures should be getting a
To that end, there have been a good number of analysts that
have moved their estimates higher over the last 60 days and just
a couple that went down.
Earnings magnitude is moving in the right direction with
estimates for current quarter as well as FY 2013 and FY2104
moving higher in that same time frame (Q3 estimates were flat to
FIX has surprised analysts 3 of the last 4 earnings reports,
exceeding analysts' consensus expectations by an average of
While there is no doubt this is a higher risk stock, it's
worth exploring deeper for opportunity. Use caution with
the low volume as even smaller trades can move the market.
If you are looking for something a little more stable in the
HVAC space, check outWatsco
(Zacks Rank #2) , Inc., they are one of the largest distributors
of air conditioning and heating equipment and related parts and
supplies in the United States. The company also sells products
used in the refrigeration industry. Such products include
condensing units, compressors, evaporators, valves, walk-in
coolers and ice machines for industrial and commercial
Jared A Levy is one of the most highly sought after traders in
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COMFORT SYSTEMS (FIX): Free Stock Analysis
WATSCO INC (WSO): Free Stock Analysis Report
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