Comfort Systems USA a Top Pick as Housing Starts Increase

Comfort Systems USA, Inc. (FIX), an HVAC and mechanical services corporation, stock is up over 34% in the six-month period beginning March 26 and over 25% year-to-date. The company is going to be one of the beneficiaries of housing starts climbing to their highest level in three months in August.

Multifamily housing starts helped push starts higher while single-family housing starts experienced modest gains.

Comfort Systems is forecasting earnings growth of over 50% for the current year, and the national HVAC company is expected to grow further as housing starts increase.

Comfort Systems’ latest earnings report shows net income of $32.5 million for the quarter ended June 30, 2018. The company’s earnings rose from $18 million during the same period a year prior.

The company’s earnings per diluted share was $0.87, up from $0.48 a share.

Revenue in the most recent quarter rose from $465.4 million in 2017 to $535 million in the current quarter. Free cash flow is also up from $4.9 million to $25.4 million. The company’s backlog was $1.23 billion, up from $1.08 billion in the first quarter of 2018.

Strong execution helped the company achieve record earnings and revenue in the second-quarter. The company has also increased its dividend in the second quarter due to better performance.

The company plans to continue to acquire companies, recently acquiring a mechanical contractor in the Midwest. The acquisition is expected to help increase the company’s earnings in the industrial sector. Acquisitions total four companies in the first two quarters of the year, with Comfort Systems expecting the acquisitions to produce $120 million in annualized revenue.

Comfort Systems does not expect the companies to add to earnings per share for the initial four to six months of ownership. Trends remain positive for the company, which is expected to continue to benefit from rising housing starts and a firming housing market.

D.R. Horton, Inc. (DHI) is a national homebuilder that will also benefit from rising housing starts, with projected growth rates of over 41%.

D.R. Horton is a leading homebuilder that is responsible for everything from sewer line connections to constructing homes.

Housing start data beat expectations, but investors fear that softening permits, which missed expectations, may be signs of a slowing housing market. A pullback in building will cause U.S. housing prices to continue to rise as the market’s inventory levels remain low, pushing home and rental prices higher as a result.