Comfort Systems USA, Inc. FIX has been riding high on solid inorganic drive, strong execution of operations as well as robust construction activity in many of the markets served by the company over the past few quarters. Shares of Comfort Systems have gained 12.5% over the past three months, comparing favorably with its industry’s collective growth of 5.4%.
Meanwhile, earnings estimates have been upwardly revised over the past few weeks, suggesting that sentiments on Comfort Systems are moving in the right direction. Earnings estimates for 2019 and 2020 have moved up 1.5% and 2.6%, respectively, over the past 30 days, reflecting analysts’ optimism surrounding the stock’s bottom-line growth potential.
This positive trend justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What Makes Comfort Systems a Solid Bet?
Strong Inorganic Moves: Comfort Systems utilizes a major portion of its cash flow on an ongoing basis to seek opportunities for acquiring businesses that have strong assembled workforces, attractive market positions and desirable locations. The company is experiencing notable business momentum, while generating significant cash flow, executing transactions that diversify service offerings and maintaining a solid balance sheet.
Revenues in 2018 increased 22.1% from a year ago to $2.18 billion, including a 5.1% increase associated with Indiana and BCH acquisitions, and 17% growth in revenues related to same-store activity.
Recently, Comfort Systems announced that it has signed an agreement to acquire Walker TX Holding Co., an electrical contractor in Texas, for $178 million. The deal is expected to close in the early part of second-quarter 2019
and will add $325-$375 million in annualized revenues. This transaction is consistent with the company's endeavor to pursue deals in the electrical market, with exposure to major metro Texas markets.
Meanwhile, the company generates solid cash flow, which gives management the opportunity to invest in acquisitions and business development. Operating cash flow in 2018 was $121.6 million, up 52.1% from the 2017 level. The company reported free cash flow of $74.6 million in the fourth quarter compared with $30.3 million the corresponding period of 2017.
Solid Performance & Backlog Will Lead to Strong Growth: Backlog as of Dec 31, 2018 amounted to $1.17 billion, reflecting 23% increase from the Dec 31, 2017 level. The upside mainly stemmed from the Indiana acquisition.
Meanwhile, the company’s operations achieved positive results in 2018, with annual earnings per share growth of more than 60%. The company benefited from favorable tax rate changes and its pre-tax income was up 47.3%, given improved execution and strong same-store growth.
In response to a substantial increase in backlog, solid performance trend along with strong industry fundamentals, the company remains well positioned for continued success in 2019.
Comfort Systems has solid growth prospects, as is evident from the Zacks Consensus Estimate for 2019 earnings of $3.35 per share, which reflects 11.5% year-over-year growth.
Overall, it constitutes a great pick in terms of growth investment, supported by Growth Score of A.
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, make a solid investment choice.
Other Stocks to Consider
Other top-ranked stocks in the Zacks Construction sector include Quanta Services, Inc. PWR, Great Lakes Dredge & Dock Corporation GLDD and Altair Engineering Inc. ALTR. While Quanta Services and Great Lakes sport a Zacks Rank #1 (Strong Buy), Altair carries a Zacks Rank #2.
Quanta Services, Great Lakes and Altair’s current-year earnings are expected to increase 28%, 27.8% and 58.6%, respectively.
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