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3 Stocks in Focus From the Thriving Air Conditioner & Heating Industry
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The Zacks Building Products - Air Conditioner & Heating industry stands at a strategic vantage point to leverage the prevailing mega-trends and opportunities tied to the energy transition and the burgeoning pro-environmental movement. As we progress into 2024 and beyond, companies within this industry are witnessing a surge in demand for renewable energy solutions, presenting lucrative avenues for expansion. Despite grappling with inflationary pressures, key players such as Comfort Systems USA, Inc. (FIX - Free Report) , AAON, Inc. (AAON - Free Report) and The AZEK Company Inc. (AZEK - Free Report) are thriving by offering essential maintenance, monitoring, and repair services, all while implementing judicious cost-control measures. Moreover, the residential sector's uptick and the push to replace outdated systems for enhanced energy efficiency and reduced carbon emissions, along with planned investments in cutting-edge technologies, are propelling industry participants forward with considerable momentum.
Industry Description
The Zacks Building Products - Air Conditioner & Heating industry comprises designers, manufacturers, and marketers of a broad range of products for heating, ventilation, air conditioning, and refrigeration markets. The products include rooftop units, chillers, air-handling units, condensing units and coils. The industry players also supply thermostats, insulation materials, refrigerants, grills, registers, sheet metal, tools, concrete pads, tape and adhesives. Air conditioning and heating equipment are sold in residential replacement, commercial and industrial HVAC (heating, ventilation and air conditioning), as well as residential new construction markets.
3 Trends Shaping the Future of the Air Conditioner & Heating Industry
U.S. Administration's Pro-Environmental Moves: Reducing greenhouse gas emissions for a cleaner environmental footprint has been a major focus of the U.S. administration. Many industry participants remain engaged in supporting industries and facilities by selling and maintaining clean and efficient energy systems to reach their environmental goals for carbon reduction while providing resiliency to grid outages. The companies are gaining from the fast-growing controlled-environment agriculture industry courtesy of their consistent supply of clean cooling solutions. Overall, the companies are well-positioned to gain from the renewable energy drive of the pro-environmental U.S. administration.
Technology Augmentation & Inorganic Moves: Persistent investments in technologies designed to revolutionize customer experience seem vital for the industry. Digitization of the companies’ marketplace via e-commerce and iOS/Android-enabled apps, supported by a comprehensive database of product information, continues to see strong momentum. Importantly, new investments in the expansion of distribution, research and development projects, and marketing programs are contributing significantly to the companies’ top lines. The players are also actively pursuing accretive acquisitions to broaden their product portfolios and expand their geographic footprints, as well as market share. Meanwhile, services associated with maintaining, monitoring and repairing the existing equipment are providing industry participants with stable revenue sources. The industry generates a major share of revenues from these services, which consumers generally cannot suspend, even when the construction market fluctuates.
Rising Costs, Regulations: Although supply-chain issues have somewhat eased in recent times, the same, along with rising raw material costs, have been causes of concern, hurting the profit margins of industry participants. Operating expenses of companies are increasing due to the sharp rises in variable operating expenses, including company-wide, performance-based compensation, and excessive logistics and freight costs. Meanwhile, the industry is susceptible to stringent governmental regulations on energy efficiency and gas emissions. HVAC systems use refrigerants for cooling, which is harmful to humans and the environment. Also, stiff competition and the impacts of seasonality on the industry’s revenues are significant risks.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products - Air Conditioner & Heating industry is a five-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #52, which places it in the Top 21% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates positive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since March 2024, the industry’s earnings estimates for 2024 have increased to $6.06 from $5.98 per share.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500, Sector
The Zacks Air Conditioner & Heating industry has outperformed the broader Zacks Construction sector and Zacks S&P 500 Composite over the past year.
In the same time frame, the industry has gained 46.8% compared with the broader sector’s 20.1% rise. Meanwhile, the Zacks S&P 500 Composite has gained 27.7% during the period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price to earnings, which is a commonly used multiple for valuing Air Conditioner and Heating stocks, the industry is currently trading at 32.7X versus the S&P 500’s 21.7X and the sector’s 16.
Over the past five years, the industry has traded as high as 40.2X, as low as 17.3X and at a median of 28.6X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 Air Conditioner and Heating Stocks to Keep an Eye On
Below, we have discussed three stocks from the Zacks Air Conditioner & Heating universe with solid growth potential.
AAON: Based in Tulsa, OK, AAON engineers, manufactures and markets air conditioning, as well as heating equipment. The company maintains a balance between new construction and replacement applications and is making the most of robust replacement demand. AAON remains highly optimistic about its long-term prospects, fueled by significant opportunities and a robust pipeline of projects, particularly in the burgeoning data center market. The company is committed to expanding production capacity through new facilities and optimizing existing resources. Investments in human capital and technology are also a priority, ensuring efficient business management and adaptability to targeted growth rates. This strategic focus on scalability and innovation positions AAON to capitalize on market demands and sustain its growth trajectory.
AAON stock — currently carrying a Zacks Rank #2 (Buy) — has gained 37.2% over the past year. AAON has seen an upward estimate revision of 0.9% for 2024 earnings over the past 30 days to $2.24 per share. The company’s earnings for 2024 are expected to grow 1.8%. AAON surpassed earnings estimates in three of the trailing four quarters and missed on one occasion, with the average surprise being 9.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: AAON
Comfort Systems: Based in Houston, TX, the company is a national provider of comprehensive heating, ventilation and air conditioning installation, along with maintenance, repair and replacement services. FIX has been thriving due to continuous high demand for its services and a substantial backlog of projects. Innovation drives its operations, keeping it competitive. Favorable market conditions in the technology and manufacturing sectors, coupled with FIX's strong project pipeline, create a solid foundation for future growth. The acquisitions have expanded its scale, increased recurring service revenues, and enhanced expertise in complex markets.
FIX currently carries a Zacks Rank #3 (Hold). The stock has gained 85.2% over the past year. The company is expected to witness 36.2% earnings growth in 2024. FIX surpassed earnings estimates in all the trailing four quarters, with the average surprise being 20%. It carries an impressive VGM Score of A, making it a potentially interesting investment opportunity. Again, FIX’s trailing 12-month return on equity (ROE) of 28.7% is better than its peer group average of 22.1%.
Price and Consensus: FIX
The AZEK Company: Headquartered in Chicago, IL, this company manufactures low-maintenance and environmentally-sustainable outdoor living products — including TimberTech decking and Versatex and AZEK Trim — for residential, commercial, and industrial markets. AZEK is demonstrating robust growth, driven by strong execution and the popularity of its outdoor living products. The company’s focus on innovation, with products like the TimberTech Aluminum Framing solution and recognition from HGTV Magazine and Good Housekeeping, underscores its industry leadership. Investments in R&D, marketing, and enhancing the consumer journey continue to pay off, propelling AZEK's brand momentum and market share.
AZEK stock — currently carrying a Zacks Rank #3 — has gained 39.8% over the past year. AZEK has seen an upward estimate revision of 2.6% for fiscal 2024 earnings over the past 60 days to $1.19 per share. The estimated figure indicates 60.8% year-over-year growth. AZEK surpassed earnings estimates in three of the trailing four quarters and met on one occasion, with the average surprise being 33.9%.
Price and Consensus: AZEK
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3 Stocks in Focus From the Thriving Air Conditioner & Heating Industry
The Zacks Building Products - Air Conditioner & Heating industry stands at a strategic vantage point to leverage the prevailing mega-trends and opportunities tied to the energy transition and the burgeoning pro-environmental movement. As we progress into 2024 and beyond, companies within this industry are witnessing a surge in demand for renewable energy solutions, presenting lucrative avenues for expansion. Despite grappling with inflationary pressures, key players such as Comfort Systems USA, Inc. (FIX - Free Report) , AAON, Inc. (AAON - Free Report) and The AZEK Company Inc. (AZEK - Free Report) are thriving by offering essential maintenance, monitoring, and repair services, all while implementing judicious cost-control measures. Moreover, the residential sector's uptick and the push to replace outdated systems for enhanced energy efficiency and reduced carbon emissions, along with planned investments in cutting-edge technologies, are propelling industry participants forward with considerable momentum.
Industry Description
The Zacks Building Products - Air Conditioner & Heating industry comprises designers, manufacturers, and marketers of a broad range of products for heating, ventilation, air conditioning, and refrigeration markets. The products include rooftop units, chillers, air-handling units, condensing units and coils. The industry players also supply thermostats, insulation materials, refrigerants, grills, registers, sheet metal, tools, concrete pads, tape and adhesives. Air conditioning and heating equipment are sold in residential replacement, commercial and industrial HVAC (heating, ventilation and air conditioning), as well as residential new construction markets.
3 Trends Shaping the Future of the Air Conditioner & Heating Industry
U.S. Administration's Pro-Environmental Moves: Reducing greenhouse gas emissions for a cleaner environmental footprint has been a major focus of the U.S. administration. Many industry participants remain engaged in supporting industries and facilities by selling and maintaining clean and efficient energy systems to reach their environmental goals for carbon reduction while providing resiliency to grid outages. The companies are gaining from the fast-growing controlled-environment agriculture industry courtesy of their consistent supply of clean cooling solutions. Overall, the companies are well-positioned to gain from the renewable energy drive of the pro-environmental U.S. administration.
Technology Augmentation & Inorganic Moves: Persistent investments in technologies designed to revolutionize customer experience seem vital for the industry. Digitization of the companies’ marketplace via e-commerce and iOS/Android-enabled apps, supported by a comprehensive database of product information, continues to see strong momentum. Importantly, new investments in the expansion of distribution, research and development projects, and marketing programs are contributing significantly to the companies’ top lines. The players are also actively pursuing accretive acquisitions to broaden their product portfolios and expand their geographic footprints, as well as market share. Meanwhile, services associated with maintaining, monitoring and repairing the existing equipment are providing industry participants with stable revenue sources. The industry generates a major share of revenues from these services, which consumers generally cannot suspend, even when the construction market fluctuates.
Rising Costs, Regulations: Although supply-chain issues have somewhat eased in recent times, the same, along with rising raw material costs, have been causes of concern, hurting the profit margins of industry participants. Operating expenses of companies are increasing due to the sharp rises in variable operating expenses, including company-wide, performance-based compensation, and excessive logistics and freight costs. Meanwhile, the industry is susceptible to stringent governmental regulations on energy efficiency and gas emissions. HVAC systems use refrigerants for cooling, which is harmful to humans and the environment. Also, stiff competition and the impacts of seasonality on the industry’s revenues are significant risks.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Building Products - Air Conditioner & Heating industry is a five-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #52, which places it in the Top 21% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates positive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a higher earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since March 2024, the industry’s earnings estimates for 2024 have increased to $6.06 from $5.98 per share.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500, Sector
The Zacks Air Conditioner & Heating industry has outperformed the broader Zacks Construction sector and Zacks S&P 500 Composite over the past year.
In the same time frame, the industry has gained 46.8% compared with the broader sector’s 20.1% rise. Meanwhile, the Zacks S&P 500 Composite has gained 27.7% during the period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price to earnings, which is a commonly used multiple for valuing Air Conditioner and Heating stocks, the industry is currently trading at 32.7X versus the S&P 500’s 21.7X and the sector’s 16.
Over the past five years, the industry has traded as high as 40.2X, as low as 17.3X and at a median of 28.6X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 Air Conditioner and Heating Stocks to Keep an Eye On
Below, we have discussed three stocks from the Zacks Air Conditioner & Heating universe with solid growth potential.
AAON: Based in Tulsa, OK, AAON engineers, manufactures and markets air conditioning, as well as heating equipment. The company maintains a balance between new construction and replacement applications and is making the most of robust replacement demand. AAON remains highly optimistic about its long-term prospects, fueled by significant opportunities and a robust pipeline of projects, particularly in the burgeoning data center market. The company is committed to expanding production capacity through new facilities and optimizing existing resources. Investments in human capital and technology are also a priority, ensuring efficient business management and adaptability to targeted growth rates. This strategic focus on scalability and innovation positions AAON to capitalize on market demands and sustain its growth trajectory.
AAON stock — currently carrying a Zacks Rank #2 (Buy) — has gained 37.2% over the past year. AAON has seen an upward estimate revision of 0.9% for 2024 earnings over the past 30 days to $2.24 per share. The company’s earnings for 2024 are expected to grow 1.8%. AAON surpassed earnings estimates in three of the trailing four quarters and missed on one occasion, with the average surprise being 9.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: AAON
Comfort Systems: Based in Houston, TX, the company is a national provider of comprehensive heating, ventilation and air conditioning installation, along with maintenance, repair and replacement services. FIX has been thriving due to continuous high demand for its services and a substantial backlog of projects. Innovation drives its operations, keeping it competitive. Favorable market conditions in the technology and manufacturing sectors, coupled with FIX's strong project pipeline, create a solid foundation for future growth. The acquisitions have expanded its scale, increased recurring service revenues, and enhanced expertise in complex markets.
FIX currently carries a Zacks Rank #3 (Hold). The stock has gained 85.2% over the past year. The company is expected to witness 36.2% earnings growth in 2024. FIX surpassed earnings estimates in all the trailing four quarters, with the average surprise being 20%. It carries an impressive VGM Score of A, making it a potentially interesting investment opportunity. Again, FIX’s trailing 12-month return on equity (ROE) of 28.7% is better than its peer group average of 22.1%.
Price and Consensus: FIX
The AZEK Company: Headquartered in Chicago, IL, this company manufactures low-maintenance and environmentally-sustainable outdoor living products — including TimberTech decking and Versatex and AZEK Trim — for residential, commercial, and industrial markets. AZEK is demonstrating robust growth, driven by strong execution and the popularity of its outdoor living products. The company’s focus on innovation, with products like the TimberTech Aluminum Framing solution and recognition from HGTV Magazine and Good Housekeeping, underscores its industry leadership. Investments in R&D, marketing, and enhancing the consumer journey continue to pay off, propelling AZEK's brand momentum and market share.
AZEK stock — currently carrying a Zacks Rank #3 — has gained 39.8% over the past year. AZEK has seen an upward estimate revision of 2.6% for fiscal 2024 earnings over the past 60 days to $1.19 per share. The estimated figure indicates 60.8% year-over-year growth. AZEK surpassed earnings estimates in three of the trailing four quarters and met on one occasion, with the average surprise being 33.9%.
Price and Consensus: AZEK