Comfort Systems (NYSE:FIX) Reports Bullish Q4, Stock Soars

HVAC and electrical contractor Comfort Systems (NYSE:FIX) reported Q4 CY2024 results beating Wall Street’s revenue expectations, with sales up 37.6% year on year to $1.87 billion. Its GAAP profit of $4.09 per share was 11.3% above analysts’ consensus estimates.

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Brian Lane, Comfort Systems USA’s President and Chief Executive Officer, said, “We are reporting record annual and fourth quarter earnings as our amazing teams across the United States continue their excellent performance. Per share earnings in 2024 were over 60% higher than the spectacular results we achieved in 2023, and our strong quarterly results were also without precedent.”

Company Overview

Formed through the merger of 12 companies, Comfort Systems (NYSE:FIX) provides mechanical and electrical contracting services.

Construction and Maintenance Services

Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years–. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Comfort Systems grew its sales at an incredible 21.9% compounded annual growth rate. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Comfort Systems’s annualized revenue growth of 30.3% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

Comfort Systems also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Comfort Systems’s backlog reached $5.99 billion in the latest quarter and averaged 36.3% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Comfort Systems’s products and services but raises concerns about capacity constraints.

This quarter, Comfort Systems reported wonderful year-on-year revenue growth of 37.6%, and its $1.87 billion of revenue exceeded Wall Street’s estimates by 5.5%.

Looking ahead, sell-side analysts expect revenue to grow 9.3% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is noteworthy and indicates the market sees success for its products and services.

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Operating Margin

Comfort Systems has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.1%, higher than the broader industrials sector.

Looking at the trend in its profitability, Comfort Systems’s operating margin rose by 4 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q4, Comfort Systems generated an operating profit margin of 12.1%, up 3.3 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Comfort Systems’s EPS grew at an astounding 36.5% compounded annual growth rate over the last five years, higher than its 21.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Comfort Systems’s earnings can give us a better understanding of its performance. As we mentioned earlier, Comfort Systems’s operating margin expanded by 4 percentage points over the last five years. On top of that, its share count shrank by 3.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Comfort Systems, its two-year annual EPS growth of 46.4% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, Comfort Systems reported EPS at $4.09, up from $2.55 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Comfort Systems’s full-year EPS of $14.61 to grow 15.3%.

Key Takeaways from Comfort Systems’s Q4 Results

We were impressed by how significantly Comfort Systems blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 8.3% to $414 immediately after reporting.

Indeed, Comfort Systems had a rock-solid quarterly earnings result, but is this stock a good investment here? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.