FIX - Comfort Systems USA: Good Long-Term Drivers But They Might Be Already Priced In

2024-04-01 05:03:54 ET

Summary

• Comfort Business USA, Inc. is rated as a hold due to high revenue growth expectations that may be unjustified.
• FIX operates in the commercial and industrial HVAC business, offering mechanical and electrical contracting services.
• The company has shown strong financial performance, high customer satisfaction, and potential for growth in the HVAC and MEP services sectors.
• In this article, I will provide evidence that FIX might be the best company in its sector, but the stock price is not attractive. I think the stock deserves to be on your radar for a long-term strategy.

I rate Comfort Systems USA, Inc. (NYSE: FIX) as a hold as the stock price is considering high revenue growth in the next few years, which might be unjustified. In the middle of the global pandemic in 2020, there were delays in service and construction, so demand started recovering in 2022 and 2023 when FIX showed revenue growth of 34.7% in 2022 YoY and 25.7% in 2023 YoY. Furthermore, consensus is expecting strong revenue growth in 2024, as the backlog remains at strong levels this year. Nevertheless, the market might be very optimistic with the current stock price of around $318 per share, as that price assumes certain revenue growth and certain FCF margins, which might be far from reality. In this sense, it's very important to be aware that the future growth assumed by the market is actually feasible. In this article, I will explain FIX's business model and its drivers briefly, and I will calculate its intrinsic value to know which levels a long-term investor should expect to buy shares. The company seems to be one of the best companies in its industry, so a long-term investor should keep the stock on his radar.

Business model

FIX was established in 1997 through a simultaneous IPO and the acquisition of 12 companies engaged mainly in the commercial and industrial heating, ventilation, and air conditioning (HVAC) business. In 1998 , FIX acquired 51 HVAC and complementary businesses that had locations in 13 additional states....

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