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What Makes Comfort Systems a Better Stock Than AAON?

Solid residential market, repair and remodeling services along with prudent cost-management practices has been boosting the Zacks Building Products - Air Conditioner and Heating industry, which includes designers, manufacturers and marketers of various heating, ventilation, air conditioning and refrigeration products.

Solid momentum of the U.S. housing market — backed by the rising need for more work-at-home space and historically-low mortgage rates — is expected to be a major tailwind for industry participants like Comfort Systems USA, Inc. FIX, AAON, Inc. AAON, Lennox International Inc. LII and Watsco, Inc. WSO. Also, the industry is expected to benefit from a solid rise in repair and remodeling activity.

Notably, Comfort Systems and AAON are the most recognized among the industry bellwethers. Let’s delve deeper into both the company’s growth and profitability measures.

Business Performance & Market Cap

Comfort Systems — with a market cap of $2.84 billion — provides comprehensive mechanical and electrical installation, renovation, maintenance, repair and replacement services within the mechanical and electrical services industries. Approximately 86.4% of the company’s revenues are earned on a project basis for installation services in newly constructed facilities and replacement of systems in the existing facilities. At March-end, it had 5,837 projects in process, with an average contract price of approximately $853,000. Larger projects totaled $4.4 billion of aggregate contract value. Additionally, approximately 13.6% of its revenues represent maintenance and repair service on already installed HVAC, electrical, and controls systems.

On the contrary, with a market cap of $3.34 billion, AAON engineers, manufactures and markets air conditioning as well as heating equipment like standard, semi-custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls. The company maintains a balance between new construction and replacement applications. Despite challenges like low demand and extreme weather conditions in first-quarter 2021, bookings increased 21%, reflecting improved trends for its products.

Price Performance

In the past year, Comfort Systems and AAON — each carrying a Zacks Rank #2 (Buy) — have gained 98.4% and 17.2%, respectively, compared with the industry's 32% growth and S&P 500 composite’s rally of 41.1%.

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Zacks Investment Research

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Compared with the industry’s collective performance, Comfort Systems has fared better than AAON. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Prospects & Surprise History

Analysts expect Comfort Systems’ earnings to fall 5.6% year over year in 2021. On the contrary, AAON’s earnings are expected to decline 12.1% over the same time frame. Hence, both the companies are meant to generate lower earnings year over year. Nonetheless, Comfort Systems is likely to suffer less than AAON.

Considering a more comprehensive earnings history, Comfort Systems beat earnings estimates in each of the last four quarters, while AAON surpassed the same in two of the trailing four quarters. Comfort Systems’ average earnings surprise of 74.9% is much better than AAON’s 14.7%.

Hence, Comfort Systems is a clear winner in terms of earnings growth expectation and surprise history. However, it is lagging behind AAON in terms of 2022 earnings prospects.

Investors’ Return & Profitability Measures

Return on Capital of Comfort Systems is 16.3%, while that of AAON and the HVAC industry is 21.1% and 14.5%, respectively. This signifies that AAON’s business generates higher return on investment than Comfort Systems.

Return on Equity in the trailing 12 months for Comfort Systems and AAON is 21.5% and 21.1%, respectively. Markedly, both the companies provide higher returns to investors compared with the industry’s 19.2%.

A Look at the Stocks’ Valuation

The trailing 12-month price-to-earnings multiple for Comfort Systems and AAON is 19.75 and 45.69, respectively, compared with the industry’s 30.53. AAON’ shares are costlier than Comfort Systems.

Trailing 12-month price-to-book multiple for Comfort Systems is 3.95 compared with 8.79 for AAON. The industry’s P/B is 10.95X. This signifies that Comfort Systems is undervalued than AAON and the industry.

Trailing 12-month price-to-sales for Comfort Systems and AAON is 1.02 and 6.83, respectively, compared with the industry’s 4.8.

After having a look at these valuation metrics, we can say that Comfort Systems is the cheaper of the two stocks.

Final Verdict

With the help of the above-mentioned factors, we can come to the conclusion that Comfort Systems certainly has an edge over AAON in terms of earnings growth, stock performance and valuation. Nonetheless, both the companies remain optimistic about the overall industry growth trend, given solid demand, favorable job market and strength in economic fundamentals, offsetting industry woes.

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Watsco, Inc. (WSO) : Free Stock Analysis Report

Lennox International, Inc. (LII) : Free Stock Analysis Report

AAON, Inc. (AAON) : Free Stock Analysis Report

Comfort Systems USA, Inc. (FIX) : Free Stock Analysis Report

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