Comfort Systems Analyst Upgrades HVAC Company After Sell-Off

Shares of Comfort Systems USA, Inc. FIX declined by around 20% Friday after the company reported second-quarter results.

Apart from the drop in share price, investors may be interested in the company’s exposure to industrial projects and the potential for organic growth comps to ease in 2020, according to D.A. Davidson.

The Analyst

Brent Thielman upgraded Comfort Systems USA from Neutral to Buy and reduced the price target from $57 to $52.

The Thesis

Comfort Systems USA reported its second-quarter GAAP EPS of 65 cents, significantly missing D.A. Davidson’s estimate of 90 cents and the consensus estimate of 88 cents, Thielman said in a Monday upgrade note. (See his track record here.) 

The company’s gross margin was disappointing due to the Walker acquisition and certain non-cash deal-related costs, the analyst said. 

Expectations did not “appropriately reflect” the near-term impact of the Walker acquisition, he said. 

Sustaining organic growth rates was more challenging this year, and the deceleration versus last year has triggered investor concern around the “longevity of the cycle,” which may have been a reason for the sell-off in shares, Thielman said. 

"Considering an active pipeline and continued backlog gains, this year's slower pace of organic growth could prove to be next year's easier comps." 

D.A. Davidson reduced reduced its EPS estimates for Comfort Systems for 2019 and 2020 from $3.52 to $2.66 and from $3.80 to $3.20, respectively, to better reflect Walker margins, amortization costs and near-term growth expectations.

Price Action

Comfort Systems shares were trading higher by 5.05% at $42.41 at the time of publication Tuesday. 

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