Comfort Systems USA, Inc. FIX is well poised to benefit from its inorganic drive, strong execution of operations as well as robust construction activity in many of its markets.
Shares of this leading provider of mechanical services — including heating, ventilation, air conditioning, plumbing, piping and controls — have gained almost 9% in the past year against its industry’s 2.9% decline. Encouragingly, the company, which shares space with Lennox International, Inc. LII, Tecogen Inc. TGEN and Watsco, Inc. WSO in the Zacks Building Products - Air Conditioner And Heating industry, surpassed estimates in three of the trailing four quarters, recording average positive surprise of 16.5%.
Meanwhile, earnings estimates have been upwardly revised over the past few weeks, suggesting that sentiments on Comfort Systems are moving in the right direction. The Zacks Consensus Estimate for the company’s fourth quarter of 2018 earnings has moved up 16.9% over the past 60 days. Also, estimates for 2019 have climbed 5.9% over the same time frame. This signifies that analysts are optimistic of the company’s future earnings growth, despite much apprehension surrounding labor and overhead costs.
Let us delve deeper into the other factors that make this Zacks Rank #1 (Strong Buy) stock a profitable pick. You can see the complete list of today’s Zacks #1 Rank stocks here.
What Makes Comfort Systems a Solid Bet?
Solid Backlog & Performance: The company has been generating higher revenues and backlog, buoyed by strong increases in construction project activity on the back of solid fundamentals and non-residential construction market. Comfort Systems’ total revenues increased 20.2% during the first nine months of 2018, most of which resulted from a high level of construction project activity during the period. SG&A expenses, as a percentage of revenues, improved 120 basis points (bps) year over year during the period. Operating margin also expanded 130 bps from a year ago. Notably, operating income during the first nine-month period exceeded the record full-year operating income generated in 2017. The company reported earnings of $2.33 per share in the said period compared with $1.27 a year ago.
Particularly, third quarter of 2018 was marked by revenue growth, margin expansion and SG&A improvement, leading to strong overall performance. This was accompanied by an impressive same-store revenue growth, strong cash flow and a record year-over-year increase in same-store backlog.
Backlog at the end of the third quarter of 2018 was $1.25 billion, reflecting an increase from $901.2 million in the year-ago period. Given strong backlog, the company’s revenue growth prospects have improved.
Strong Inorganic Drive: Comfort Systems acquired seven companies during the first nine months of 2018. It has completed two acquisitions in the third quarter of 2018, three acquisitions in the second quarter and two in the first quarter.
Meanwhile, the company generates solid cash flow, which gives management the opportunity to invest in acquisitions and business development. In the first nine months of 2018, operating cash flow was $68 million, up 3.5% year over year. The company generated free cash flow of $47 million and positive free cash flow in each of the last 20 calendar years.
Solid Growth Prospects: Comfort Systems has solid growth prospects, as is evident from the Zacks Consensus Estimate for current-quarter earnings of 83 cents per share, which are expected to grow 84.4% year over year. Meanwhile, the company’s revenues are expected to increase by a decent 24.4% in the quarter. Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of B.
VGM Score: Comfort Systems has a VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 (Buy) make a solid investment choice.
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