Company profile
Establishment of company
Comfort Systems USA (ticker: FIX) was formed by the merger of 12 companies into one company in 1997 and a public offering. It then continued to grow and develop through acquisitions and became the Comfort Systems USA we see today.
Business
The company is located in the construction and home maintenance industries. Provides heating, ventilation and air conditioning (HVAC) installation, maintenance, repair and replacement services. In addition to standard HVAC services, it provides specialty applications such as building automation control systems, fire protection, process cooling, electronic monitoring and process piping. Some locations also engage in related activities, such as electrical services and plumbing work.
A turning point for the company
In 2002, 19 of its subsidiaries were sold to EMCOR to reduce debt after the September 11, 2001, incident. After paying off all debt by 2005, the company resumed growth through acquisitions and investments in existing businesses.
IPO
The company went public in June 1997 with the goal of becoming a national provider of building systems installation and maintenance services for building systems. At that time, it was a merger of only 12 operating small and medium-sized enterprises, with revenue that year of approximately US$167 million.
Company operations
Products and services
The company is an American plumbing and mechanical professional services company that provides heating, ventilation, air conditioning (HVAC), and mechanical, electrical, and plumbing (MEP) installation, maintenance, repair, and replacement services to commercial, industrial, and institutional customers, such as Customers include manufacturers, educators, corporate offices, retail stores, residential construction, and government agencies.
The professional services provided by the company can be divided into two categories: MEP and related system design, integration, installation, and commissioning services for new buildings; and renovation, expansion, maintenance, monitoring, and repair services for existing buildings. Replacement Services.
Business units
The company’s business can be mainly divided into two major units, namely:
Mechanical services account for 75.8% of total revenue: responsible for the supply of applicable professional services in technical fields such as building HVAC, water piping systems, production pipeline systems and controls. The department also provides off-site construction, monitoring, and safety and fire protection services. .
Motor services accounted for 24.2% of total revenue: responsible for providing professional services suitable for motor systems, such as installation and other services.
Competitors
Comfort Systems USA’s main competitors are Broadway Mechanical-Contractors, SPX Technologies (ticker: SPXC) and Hays + Sons.
Operating performance
2024 Q3 Financial Report
- Revenue: $1.81 billion, up 31.5% year over year, vs. analysts forecasting $1.84 billion (1.6% below expectations)
- Earnings per share: $4.09, compared with analysts’ estimate of $3.99 (beating estimates by 2.4%)
- EBITDA: $238.3 million vs. analysts forecast $222.3 million (beating estimates by 7.2%)
- Gross profit margin (GAAP): 21.1%, the same as the same period last year
- Operating profit margin: 11.2%, higher than 9.8% in the same period last year
- EBITDA margin: 13.1%, up from 11.3% in the same period last year
- Free cash flow margin: 15.6%, up from 13.7% in the same period last year
- Backlog: $5.68 billion at quarter end, up 32.5% year-on-year
Operating profit margin
Comfort Systems has been profitable over the past five years but has been hampered by its large cost base. Its average operating margin of 7.7% is low for an industrial company. This result is not surprising considering its low gross margin as a starting point.
On the bright side, Comfort Systems’ annual operating margin has grown 3.3 percentage points over the past five years as its sales growth gave it operating leverage.
In the third quarter, operating profit margin was 11.2%, an increase of 1.4 percentage points from the same period last year. This growth is encouraging, and since its operating margins are growing faster than gross margins, one can infer that it’s been more efficient lately with expenses like marketing, R&D, and overhead.
Earnings per share
Comfort Systems’ earnings per share have grown at an impressive 37.2% CAGR over the past five years, faster than its 22.2% annualized revenue growth. This tells us that as a company expands, profits become more lucrative.
The future of the company
Prospect
Comfort Systems is located in the construction and home maintenance industry. The business itself is not attractive, but the company has been able to deliver outstanding results for many years, with revenue and profits repeatedly exceeding investor expectations.
Operating trends
Comfort Systems’ annual revenue growth over the past five years is an incredible 22.2%. Comfort Systems’ annualized revenue growth over the past two years is 29.6%, which is above its five-year trend, indicating strong demand and Accelerated recently.
Additionally, Comfort Systems’ operating margins increased 3.3 percentage points over the past five years.
These are the reasons why the stock price has performed so well all year round.
Comfort Systems’ cumulative orders in the third quarter of 2024 reached US$5.68 billion, with an average annual growth rate of 43.7% over the past two years. Since this number outperforms its revenue growth, we could see the company accumulating more orders than it can fulfill and deferring revenue into the future.
Outlook
Wall Street expects revenue to grow 12.4% over the next 12 months and Comfort Systems’ full-year earnings per share to grow 13.8% over the next 12 months. Looking ahead, it is slower than the past two years. Still, the prediction is admirable.
Capital market performance
Market valuation
As of October 24, 2024, Comfort Systems’ market value is US$14.75 billion, with a price-to-earnings ratio of 34.72.
Cash dividend
As of October 24, 2024, Comfort Systems has a yield of 0.29%.
Stock price performance
As of October 24, 2024:
- Since June 1997, the stock price has increased by 2,484.19%.
- The company’s stock price has increased by 701.76% in the past five years.
- The company’s stock price has increased by 167.05% in the past year.
- These figures are respectable performances, not inferior to those of large U.S. technology stocks.
Repurchase
It is worth mentioning that the company’s outstanding shares decreased by 3.5%. These are positive signs for shareholders, as improved profitability and share buybacks drive earnings per share growth relative to revenue growth.
Conclusion
Comfort Systems is another listed company with an unattractive business but amazing stock performance.
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