Comfort Systems USA, Inc.’s FIX shares have been rallying high, courtesy of strong execution across its operations, inorganic drive, coupled with robust construction activity in many of its markets.
In fact, shares of this leading provider of mechanical services — including heating, ventilation, air conditioning, plumbing, piping and controls — have gained more than 25% year to date, outperforming the industry’s 6.6% growth.
Notably, earnings estimates for Comfort Systems have exhibited an uptrend, reflecting optimism in the stock’s prospects. The Zacks Consensus Estimate for the company’s 2018 earnings has moved up 6.3% over the past 60 days. Also, estimates for 2019 have climbed 8.5% over the same time frame. This signifies that analysts are optimistic of the company’s future earnings growth, despite much apprehension surrounding labor and overhead costs.
Let us delve deeper into other factors that make this Zacks Rank #1 (Strong Buy) stock a profitable pick. You can see the complete list of today’s Zacks #1 Rank stocks here.
What Makes the Stock an Attractive Pick?
Strong Performance & Solid Backlog: The company has been reporting strong results, banking on higher sales and impressive backlog growth, and benefiting from an active non-residential market environment. Comfort Systems’ total revenues increased more than 18% during the first six months of 2018, most of which resulted from a high level of construction project activity during the period.
Particularly, in the last reported quarter, the company’s adjusted earnings came in at 79 cents per share versus 48 cents a year ago.
Backlog at the end of the second quarter of 2018 touched an all-time high $1.23 billion, reflecting an increase of $149 million or 14% from the first quarter of 2018. Backlog increased $290 million, depicting a 31% increase on a year-over-year basis. Given strong backlog, the company’s revenue growth prospects have improved. Comfort Systems expects upper single-digit revenue growth during the second half of 2018.
Strong Inorganic Drive: Comfort Systems acquired four companies during the first half of 2018. In July, the company acquired a mechanical contractor in the Midwest, which will help boost its industrial presence. These additions are expected to produce approximately $120 million of annualized revenues. Comfort Systems also expects these companies to perform at levels comparable to its existing operations.
Meanwhile, the company generates solid cash flow, which gives management the opportunity to invest in acquisitions and business development. In the second quarter, free cash flow was $25.4 million versus $4.9 million a year ago. In fact, its free cash flow came in at $24 million during the first six months of 2018 compared with $10.1 million a year ago.
Solid Growth Prospects: Comfort Systems has solid growth prospects, as is evident from the Zacks Consensus Estimate for its current-year earnings of $2.72 per share, which are expected to grow 56.3% year over year (higher than the industry average of 21.7%). Meanwhile, the company’s revenues are expected to increase by a decent 17.7% in 2018 (versus 5.5% of the industry). Moreover, its earnings are expected to increase 12.9% on 9.5% revenue growth in 2019. Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A.
VGM Score: Comfort Systems has a VGM Score of B. 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 (Buy) make a solid investment choice.
Other Stocks to Consider
Other top-ranked stocks in the Construction sector include Gates Industrial Corporation plc GTES, KBR, Inc. KBR and Jacobs Engineering Group Inc. . While Gates Industrial and KBR sport a Zacks Rank #1, Jacobs carries a Zacks Rank #2.
Gates Industrial’s earnings are expected to increase 42.2% in 2018.
KBR surpassed earnings estimates in three of the trailing four quarters, resulting in an average positive surprise of 12.3%.
Jacobs’ 2018 earnings are expected to increase 35.2%.
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