Lately Eddy from CWS-Blog mentioned Comfort Systems USA as an interesting company (link) The company describes itself as “a leading provider of commercial, industrial and institutional heating, ventilation and air conditioning (“HVAC”) services.” Let’s find out if that company is an interesting investment!
Comfort Systems USA is a nationwide company that provides commercial HVAC*, mechanical and electrical contracting to customers ranging from small businesses to Fortune 500 companies. Headquartered in Houston, TX.
When looking at the pictures on their Homepage, I have to think of Precision Castparts or Rolls Royce and their Aftermarket-Revenue. I will find out if Service represents a big part of their revenue.
From the 2016 Presentation:
- Leading mid-market HVAC* and mechanical systems installation and service provider
- $1.6B Yearly revenues
- 7,800+ Employees
- 35 Operating companies
- Balanced construction & service portfolio
- Positive free cash flow for 17 consecutive years
Note: “Service & Maintenance” grew from 13% (from revenue) in 2008 to 18% in 2016. The same number for Rolls Royce is ~50% (link, page 3) It looks like Comfort Systems USA stock is not a big bet on aftermarket revenue.
… I have to think of german Bilfinger while reading the presentation – not a good sign – maybe I am biased? Maybe I am worshiping aftermarket revenue to much?
15/16 Operating CashFlow is lower. Operating CashFlow 2015 was an outlier (see Page 13 Presentation). Operating Income (2-6%) and Adjusted EBITDA (3-7%) margins are not very appealing. Yahoo-Finance shows a very good ~18% Return on Equity for Comfort Systems USA (link)
About their Capital Allocation: Acquisitions (58%), Share Repurchases (22%), Dividends (20%) – nothing exciting here (Presentation Page 17)
The shareprice felt from around 33 USD to 28,5 USD since July 2016.
The Company reported net income attributable to Comfort Systems USA for the six months ended June 30, 2016 of $27,558,000 or $0.73 per diluted share,…
Last year the company earned around** 1,30 USD this would translate into a P/E-ratio of ~22.
At the moment Comfort Systems USA pays a quarterly dividend of 0,07 USD (link)
Construction can be a hard buisines (see reported loss in 2011). I like that they opperate in some kind of niche (HVAC) – but personaly I think they have not realy a moat (see Adjusted EBITDA margin). I can not say much about the management but ~18% Return on Equity sounds not that bad. Comfort Systems USA could be a good company but it is not my cup of coffee. I will stop researching them here.
*HVAC is heating, ventilation and air conditioning
**Net income from continuing operations attributable to Comfort Systems USA, Inc. excluding goodwill impairment, changes in the fair value of contingent earn-out obligations, tax valuation allowances and out of period adjustment