Chicago, IL – March 11, 2025 – Today, Zacks Equity Research discusses Carrier Global Corp. CARR, Comfort Systems USA, Inc. FIX and The AZEK Company Inc. AZEK.
Link: https://www.zacks.com/commentary/2427779/3-air-conditioner-heating-stocks-in-focus-overcoming-industry-hurdles
The Zacks Building Products - Air Conditioner & Heating industry faces headwinds from housing market volatility, economic uncertainty, and shifting regulations, particularly in Europe and China. Higher interest rates and cautious consumer spending could slow renovation and construction activity, impacting demand. Trade policy risks, including potential tariffs on imports and raw materials, may add cost pressures and disrupt supply chains.
Nonetheless, industry players like Carrier Global Corp., Comfort Systems USA, Inc. and The AZEK Company Inc. are poised to benefit from the U.S. administration's pro-environmental initiatives, supporting demand for energy-efficient solutions. Investments in digitalization, distribution expansion, and strategic acquisitions continue to drive growth, while service-based revenues provide a stable income stream even during market fluctuations. Despite macroeconomic and regulatory challenges, the industry's long-term outlook remains supported by innovation, sustainability trends, and the essential nature of HVAC services across residential, commercial, and industrial markets.
The Zacks Building Products - Air Conditioner & Heating industry comprises designers, manufacturers, and marketers of a broad range of products for heating, ventilation, air conditioning, and refrigeration markets. The products include rooftop units, chillers, air-handling units, condensing units and coils.
The industry players also supply thermostats, insulation materials, refrigerants, grills, registers, sheet metal, tools, concrete pads, tape and adhesives. Air conditioning and heating equipment are sold in residential replacement, commercial and industrial HVAC (heating, ventilation and air conditioning), as well as residential new construction markets.
Housing Market Volatility & Macroeconomic Uncertainty: The broader housing and remodeling market remains uncertain. Higher interest rates, economic fluctuations, and shifts in consumer spending patterns can impact renovation and construction activity. If homeowners and builders pull back on discretionary projects due to economic concerns, the industry players could face slower growth.
The companies operating in multiple global markets are susceptible to economic and political fluctuations. The European market, particularly in Germany, is facing political and economic uncertainty, affecting demand for residential HVAC solutions. The upcoming elections in Germany and policy changes regarding energy efficiency subsidies could impact consumer confidence and purchasing decisions.
Additionally, economic slowdowns in China and fluctuating demand in certain Asian markets present challenges for growth and stability. The residential HVAC segment, particularly in Europe and China, has been navigating through changing regulatory environments and economic headwinds. In Europe, shifts in government subsidies and policies on heat pumps have introduced uncertainty. In China, a struggling property sector and weak demand for light commercial HVAC are concerns.
Tariff and Trade Policy Risks: Many industry players are exposed to potential disruptions from changing trade policies, particularly in the United States and Mexico. With ongoing discussions about increased tariffs on imports from Mexico, any changes could impact production costs and pricing strategies with companies having significant manufacturing operations. Steel and aluminum tariffs also present cost risks. Managing supply chain efficiency while ensuring cost competitiveness in the face of potential tariff increases remains a critical challenge.
Rising Costs, Regulations: Although supply-chain issues have somewhat eased in recent times, the same, along with rising raw material costs, have been causes of concern, hurting the profit margins of industry participants. Operating expenses of companies are increasing due to the sharp rises in variable operating expenses, including company-wide, performance-based compensation, and excessive logistics and freight costs.
Meanwhile, the industry is susceptible to stringent governmental regulations on energy efficiency and gas emissions. HVAC systems use refrigerants for cooling, which is harmful to humans and the environment. Also, stiff competition and the impacts of seasonality on the industry's revenues are significant risks.
U.S. Administration's Pro-Environmental Moves: Reducing greenhouse gas emissions for a cleaner environmental footprint has been a major focus of the U.S. administration. Many industry participants remain engaged in supporting industries and facilities by selling and maintaining clean and efficient energy systems to reach their environmental goals for carbon reduction while providing resiliency to grid outages.
The companies are gaining from the fast-growing controlled-environment agriculture industry courtesy of their consistent supply of clean cooling solutions. Overall, the companies are well-positioned to gain from the renewable energy drive of the pro-environmental U.S. administration.
Technology Augmentation & Inorganic Moves: Persistent investments in technologies designed to revolutionize customer experience seem vital for the industry. Digitization of the companies' marketplace via e-commerce and iOS/Android-enabled apps, supported by a comprehensive database of product information, continues to see strong momentum. Importantly, new investments in the expansion of distribution, research and development projects, and marketing programs are contributing significantly to the companies' top lines.
The players are also actively pursuing accretive acquisitions to broaden their product portfolios and expand their geographic footprints, as well as market share. Meanwhile, services associated with maintaining, monitoring and repairing the existing equipment are providing industry participants with stable revenue sources. The industry generates a major share of revenues from these services, which consumers generally cannot suspend, even when the construction market fluctuates.
The Zacks Building Products - Air Conditioner & Heating industry is a seven-stock group within the broader Zacks Construction sector. The industry currently carries a Zacks Industry Rank #156, which places it in the Bottom 37% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of a lower earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. Since December 2024, the industry's earnings estimates for 2025 have decreased to $5.47 per share (from $5.50).
Despite the industry's blurred near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it's worth taking a look at the industry's shareholder returns and current valuation.
The Zacks Air Conditioner & Heating industry has outperformed the broader Zacks Construction sector and Zacks S&P 500 Composite over the past year.
In the same time frame, the industry has gained 18.1% against the broader sector's 3.1% decline. Meanwhile, the Zacks S&P 500 Composite has gained 13.8% during the period.
On the basis of the forward 12-month price to earnings, which is a commonly used multiple for valuing Air Conditioner and Heating stocks, the industry is currently trading at 26.82X versus the S&P 500's 21.24X and the sector's 16.36.
Over the past five years, the industry has traded as high as 32.83X, as low as 17.35X and at a median of 25.34X.
3 Air Conditioner and Heating Stocks to Look Into
Below, we have discussed three stocks from the Zacks Air Conditioner & Heating universe with solid growth potential.
AZEK: Headquartered in Chicago, IL, this company is the industry-leading manufacturer of beautiful, low-maintenance and environmentally sustainable outdoor living products. The residential segment remains AZEK's core growth driver, fueled by consistent demand for decking, railing, and exterior products. Expansion of its distribution network, early-buy programs, and brand awareness have fueled this momentum.
New product launches, such as TimberTech Fulton Rail and Versatex XCEED Siding, have been well received, helping AZEK capture more market share and accelerate wood-to-sustainable material conversion. Additionally, its investment in recycling, including a new Indiana facility, enhances its sustainable material sourcing and processing capabilities.
AZEK has recently acquired Northwest Polymers to enhance its recycling capabilities, strengthen its supply chain in the western United States, and support its sustainability efforts. This move aligns with AZEK's growth strategy and expands its FULL-CIRCLE PVC Recycling program.
AZEK stock — currently carrying a Zacks Rank #2 (Buy) — has lost 9.4% over the past year. AZEK has seen an upward estimate revision of 1.4% for fiscal 2025 earnings over the past 60 days to $1.44 per share. The company's earnings for fiscal 2025 are expected to grow 20%. AZEK surpassed earnings estimates in three of the trailing four quarters and met on one occasion, with the average surprise being 12.4%. The company's three-to-five year expected EPS growth rate is 18.1%. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Carrier Global: Headquartered in Palm Beach Gardens, FL, the company offers innovative climate and energy solutions across the United States, Europe, the Asia Pacific, and other global markets. Carrier's strategic transformation efforts, including investments in digitally enabled lifecycle solutions and an increased focus on integrated systems, have been driving growth.
The expansion into solutions such as home energy management systems and battery-integrated heat pumps for grid resiliency helped to broaden Carrier's addressable market and enhance customer value. New product launches, such as the QuantumLeap cooling solution for data centers and expanded digital offerings in the cold chain sector, are expected to drive additional revenue streams.
CARR currently carries a Zacks Rank #3 (Hold). The stock has gained 17.9% over the past year. CARR has seen an upward estimate revision of 1% for 2025 earnings over the past 30 days to $2.99 per share. The company is expected to witness 16.8% earnings growth in 2025. CARR surpassed earnings estimates in all the trailing four quarters, with the average surprise being 8.7%. The company's three-to-five year expected EPS growth rate is 11.2%.
Comfort Systems: Based in Houston, TX, the company is a national provider of comprehensive heating, ventilation and air conditioning installation, along with maintenance, repair and replacement services. The company's diversified revenue base has been a significant growth driver, with industrial clients contributing 60% of revenues in 2024, bolstered by demand in technology, life sciences, and battery plants.
The technology segment, particularly data center and chip manufacturing projects, was the largest driver, growing from 21% to 33% of total revenues in 2024. This sector's expansion was fueled by high demand for hyperscale data centers and semiconductor manufacturing facilities. Comfort Systems USA's strategic acquisitions, including the recent purchase of Century Contractors, further bolstered revenue and market reach.
Innovation drives its operations, keeping it competitive. Favorable market conditions in the technology and manufacturing sectors, coupled with FIX's strong project pipeline, create a solid foundation for future growth.
FIX currently carries a Zacks Rank #3. The stock has gained 9.2% over the past year. FIX has seen an upward estimate revision of 6% for 2025 earnings over the past 30 days to $17.87 per share. The company is expected to witness 22.4% earnings growth in 2025.
FIX surpassed earnings estimates in all the trailing four quarters, with the average surprise being 14.9%. It carries an impressive VGM Score of A, making it a potentially interesting investment opportunity. Again, FIX's trailing 12-month return on equity of 34% is better than its peer group average of 20.8%.
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