Comfort Systems USA, Inc. (FIX – Free Report) is scheduled to report fourth-quarter 2024 results on Feb. 20, after the closing bell.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
In the last reported quarter, Comfort Systems delivered record earnings, fueled by strong execution and robust demand in key industrial and institutional markets. The company reported earnings per share (EPS) of $4.09, beating Zacks Consensus Estimate by 1% and increasing 40% from a year ago, while revenue grew 31.5% to $1.81 billion. The company reported $238 million in quarterly EBITDA, a 53% increase year over year. Even without contributions from recent acquisitions, same-store EBITDA rose more than 30%, indicating that core operations are driving significant profit expansion.
Comfort Systems has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the last four quarters. The average surprise over this period is 14.7%, as shown in the chart below.
Image Source: Zacks Investment Research
How Are Estimates Placed for FIX Stock?
The Zacks Consensus Estimate for the fourth-quarter EPS has remained unchanged at $3.43 over the past 60 days. The estimated figure indicates a 34.5% increase from the year-ago reported EPS of $2.55. Also, the consensus mark for revenues is $1.75 billion, indicating 29.3% year-over-year growth.
Image Source: Zacks Investment Research
What Our Model Indicates for FIX Stock
Our proven model does not predict an earnings beat for FIX this time around. The company does not possess the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.
Earnings ESP: FIX has an Earnings ESP of 0.00%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Influencing Q4 Performance for Comfort Systems
Comfort Systems is expected to witness solid growth in the fourth quarter of 2024, driven by strong demand in the technology and manufacturing sectors. Its Mechanical segment (which accounted for 79.4% of its third-quarter total revenues) and the Electrical segment (which accounted for 20.6% of its total revenues) have been benefiting from solid demand, particularly data centers, chip plants, food, and pharmaceuticals. The company’s backlog is strategically aligned with high-demand areas such as data centers, chip fabrication, battery plants, life sciences, and food, positioning FIX to capitalize on sector-specific growth trends.
Acquisitions have also been playing a crucial role in Comfort Systems’ growth, broadening its operational scope and enhancing revenue streams. The company’s focus on strategic investments for improved profitability and efficient service execution, coupled with accretive buyouts, is expected to drive substantial growth in the fourth quarter. The company has entered the fourth quarter with 21% more same-store backlog than a year ago, suggesting continued strength in demand.
Despite the strong results, challenges remain. During the third-quarter earnings call, management acknowledged the difficulty of maintaining current levels of growth amid tough year-over-year revenue comparisons in upcoming quarters. For the fourth quarter of 2024, the company expects revenue growth to align with the third-quarter performance. Margins are expected to remain strong, though seasonal factors will likely result in fourth-quarter margins coming in slightly lower than the third quarter. Comfort Systems expects EBITDA margins to remain elevated in the fourth quarter of 2024.
Overall, the company’s bottom line is likely to have witnessed solid year-over-year growth in the fourth quarter thanks to the leverage from increased revenues accompanied by operational excellence and capital allocation strategies.
Going forward, Comfort Systems’ strategic moves toward piloting emerging technologies, engaging in partnerships with industry-leading tech firms and data analytics are likely to have sparked its growth momentum in the to-be-reported quarter and beyond.
FIX Stock’s Price Performance & Valuation
FIX’s stock has exhibited an upward movement in the six-month period. The stock has gained 17.5% compared with the industry’s rise of 6.9% in the same time frame. FIX has also performed better than its peer companies like EMCOR Group, Inc. (EME – Free Report) , which gained 15.6% during the same time frame.
FIX’s 6-Month Price Performance
Image Source: Zacks Investment Research
Let’s assess the value FIX offers to investors at its current levels.
Presently, FIX is trading at forward 12-month earnings multiple of 23.01X, which is above its three-year median of 21.52X. In comparison, the industry’s forward earnings multiple is 29.86X. This suggests that although FIX’s valuation appears somewhat high relative to its historical range, it remains undervalued when compared to the industry average.
The company is trading currently at a discount compared to similar industry players like Watsco, Inc. (WSO – Free Report) and AAON, Inc. (AAON – Free Report) but is slightly premium to EMCOR. WSO, AAON and EME have forward 12-month P/E multiples of 32.93, 36.27, and 19.06, respectively.
Image Source: Zacks Investment Research
Investment Thoughts: Buy, Sell or Hold FIX Stock?
Comfort Systems presents a compelling investment opportunity despite facing tougher prior-year comparable results for the upcoming quarters. The company expects revenue growth in the fourth quarter to be similar to the prior quarter, but sustaining more than 30% revenue growth in 2025 will be more difficult. Additionally, the normalization of pre-bookings and equipment advances might pose future cash flow challenges, but the company’s strategic approach and resilient same-store activity provide a solid foundation. Labor shortages continue to be a significant challenge for the construction and industrial services industry. Comfort Systems, like many contractors, faces tight labor markets, particularly for skilled trades.
One of the most attractive aspects of FIX is its commitment to shareholder rewards. Over the past 16 years, Comfort Systems has consistently allocated an average of 11% of its capital toward dividend payments. With steady free cash flow and a resilient balance sheet, the company has increased its dividend payout for 12 consecutive years. The company is generating record cash flow, with $572 million in free cash flow year to date (as of the third quarter of 2024) and net cash exceeding debt by $347 million. This financial strength allows the company to invest in growth and acquisitions while reducing interest costs, even after significant cash payments for recent acquisitions.
In conclusion, despite short-term challenges, Comfort Systems’ strategic acquisitions, record backlog, and impressive valuation make it a compelling investment opportunity. The company’s strategic cash management and commitment to shareholder rewards underscore its long-term growth potential. However, those looking for immediate momentum may want to wait for a better entry point or signs of stronger earnings revisions.
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