Comfort Systems: Stock surges after repurchase program increased

Comfort Systems’ Board of Directors announced on May 22, 2025, to increase the shares authorized and remaining as available to buy back up to 1,000,000 shares by authorizing the company to acquire up to 402,413 additional shares of its outstanding common stock. The group previously authorized the repurchase of up to 11,355,551 shares, out of which a total of 10,757,964 shares have been repurchased through to May 16, 2025. The stock reacted positively to the news, having risen about 6% to date.

Comfort Systems USA, Inc., based in the US, is a leading provider of mechanical, electrical, and plumbing (MEP) services. The Mechanical segment primarily includes heating, ventilation and air conditioning (HVAC), plumbing, piping and controls, and other site construction, monitoring and fire protection. The Electrical segment includes installation and servicing of electrical systems. The company went public in 1997 with 12 operating companies. However, over the years, the group has grown considerably and today is comprised of over 47 operating units with 178 locations in 135 cities across the US. The group has over 19,000 employees.

Segment-wise, Mechanical contributed 77% of the revenue in Q1 25, while Electrical made up 23%. Likewise, Mechanical comprised 75% of total gross profits, and Electrical contributed 25%.

Q1 25 results reflect business resilience

Comfort Systems delivered decent performance during the quarter with revenue rising 19.1% y/y to $1,831.3m, driven by performance across the US. Gross profit surged by 35.7% to $403.4m, with margins expanding by 270bp to 22%. Net income jumped 75.8% to $169.3m, and diluted EPS increased to $4.75 from $2.69 in Q1 24, marking a period of resilient performance in an otherwise historically seasonally weakest period.

The company reported operating cash outflows of $88m in Q1 25, compared to cash inflows of $146.6m in the prior corresponding quarter, largely due to  substantial payments to a key customer, resulting in a normalization of working capital.

Healthy contribution from diverse sectors

The company operates primarily in the commercial, industrial and institutional MEP markets and supports services in manufacturing, healthcare, education, office, technology, retail and government facilities. In Q1 25 Industrial, comprised of Technology and Manufacturing, contributed 37% and 25% to the sales-mix; Institutional made up 24% - Healthcare (10%), Education (9%), and Government (5%); Commercial includes Office Buildings, Retail, and Other with contributions of 7%, 4% and 3%, respectively. In terms of activity, New Construction contributed 39%, while Existing Construction made 27%, Modular 19%, Service and Maintenance 8%, and Service Projects 7%.

Comfort Systems has demonstrated a steady rise in backlog over FY 19-24, surging at a CAGR of 30% to $5,994m at end-FY 24. The backlog position has further increased to $6,889m as of end Q1 25. The outlook appears to be encouraging with strong traction in markets like technology – data centers and chip manufacturing, life sciences, healthcare and EV battery amongst others. There are also solid trends observed in on-shoring, modular and service.

Strong balance sheet position

Comfort Systems posted a solid revenue CAGR of 21.9% over FY 19-24, reaching $7bn. Operating income surged at a CAGR of 36.6% over the same period, reaching $746m in FY 24, with margins expanding by 4.6% to 10.6%. Net income therefore rose at a CAGR of 35.5% to $522m in FY 24.

Positive earnings trajectory has helped to solidify the cash position of the group, strengthening over 10x to $550m at end-FY 24 from $50.8m at end-FY 19. The cash profile has also been boosted by a solid rise in cash generation from operations over the same period. Debt to equity of the company also improved from 53.5% to 18.1%.

On the other hand, Quanta Services, a local peer, reported a lower revenue CAGR of 14.3% over the past five years, reaching $23.7bn in FY 24. Operating income rose at a CAGR of 17.5% to $1.3bn in FY 24.

Impressive stock returns

Over the past one year, the company's stock has delivered robust returns of approximately 57%, reflecting a positive fundamental trajectory. In comparison, Quanta Services delivered lower returns of about 31%.

Despite the sharp rise in the share prices, the company is trading at lower multipes than Quanta Services. Comfort Systems is currently trading at a P/E of 25.3x, based on the FY 25 estimated EPS of $19.4, which is lower than that of Quanta Services (49.5x). However, it is trading higher than its 3-year historical average of 22.9x.

Likewise, in terms of EV/EBITDA, the company is currently trading at 16.5x, based on the FY 25 estimated EBITDA of $1,028m, which is lower than Quanta Services’ valuation of 20.4x. However, it is trading higher than its 3-year historical average of 14.5x.

Comfort Systems is mostly liked by seven analysts, with six having ‘Buy’ ratings and one having a ‘Hold’ rating for an average target price of $514.2, implying 4.4% limited upside potential.

Their views are further supported by an anticipated EBITDA CAGR of 7.8% over FY 24-27, reaching $1,117m, with margins of 12.4% in FY 27. In addition, analysts estimate a net profit CAGR of 15.1%, reaching $797.3m with margins of 8.9% in FY 27, with EPS expected to increase to $21.6 in FY 27 from $14.6 in FY 24. Likewise, analysts estimate EBITDA CAGR of 14.3% and net profit CAGR of 19.8% for Quanta Services.

Overall, the company appears set for long term growth, supported by strong earnings, robust order backlog, and strong project pipelines across key sectors. Further, the management is optimistic about the group’s future performance and expect strong earnings and cash in 2025. However, Comfort Systems’ business is subject to a variety of risks and uncertainties, including project execution risk, economic downturn and risk of cost overruns.