AAON - AAON: Leading The Data Center Cooling Solutions

2024-05-13 11:39:39 ET

Summary

• The HVAC industry is expected to grow, and I view AAON as the strongest player, benefiting from regulations and the data center market growth.
• AAON has increased its revenues from replacement compared to new constructions, reducing volatility during an economic downturn.
• The HVAC rooftop market has a total addressable value of ~6B, which is 7.5x AAON's revenues in that segment.
• The company has paid all its debt and is generating high returns on capital that are reinvested in organic growth.
• During Q1, AAON missed revenues and earnings per share but increased its gross margins from 29% to 35.2%.

Investment Thesis

Despite the recent miss on expectations during Q1 , I believe AAON is well positioned to benefit from the energy efficiency regulations and the growing data center market.

The HVAC industry is expected to grow at healthy rates with minimal disruption risks, and I view AAON as the strongest player in the industry. I have recently initiated a position at $71 per share and planning to increase if the valuation comes down.

Its zero long-term debt, higher margins due to substantial R&D spending over many years, unique business model, and the opportunity to reinvest high returns on capital into organic growth due to its smaller size has allowed the company to continue gaining market share....

For further details see: