Comfort Systems USA, Inc (FIX) reminds us of POWL at $100 before it J-curved to a big up-leg.
FIX has everything we look for in a top tier inflection:
FIX is one of the biggest construction contracting companies in the US, very levered to two huge structural trends:
FIX has a rich history of growing earnings via an adept, acquisitive strategy reminiscent of AVGO's tuck-in strategy.
To wit, from 2014-2024, FIX grew earnings from $0.75 to $14 a share.
We think the best is yet to come.
What is notable about the highlighted results above is that the Total Backlog increased sequentially from Q1 to Q2.
Backlog increasing ~16% sequentially from Q1 to Q2 is an incredible achievement and it showcases the powerful inflection point at hand that will manifest in record revenues and earnings the next six quarters.
Typically, FIX’s backlog declines from Q1 to Q2 by ~4% as the revenue burn works down the backlog.
In this case, AI Inferencing builds for complicated clusters are accelerating FIX's business at an incredible rate. This sets them up for record earnings this year and next.
For instance, we think FIX will post $8.45B in revenues and $23.50 in EPS for FY25 and $11B in revs and $32.00 in EPS in FY26. Take a look at consensus now:
Our EPS numbers are 20%’ish above consensus for this year and around 40% above for next year.
We like our numbers. This biz is easy to model, similar to that of POWL when we recommended it at $100 last year… before it quickly doubled to $200.
Similarly, FIX's forward numbers – at least in our model – have increased strongly to $32.00, again 40% above consensus.
Just as POWL was cheaper after its big gap up, with respect to its generational inflection point 15mo ago, we see the same story playing out here with FIX. Even though it will be gapping up 15% to all-time highs tomorrow, we believe there is more runway to go.
A lot more....
In fact, we think an overshoot to $1,000 could be in play the next 12 months.
FIX increased its dividend again from $0.45 to $0.50 (+11.5% sequentially) and is sure to do some new tuck-ins as well.
Here is a link to its presentation for its earnings call tomorrow. Unfortunately, it’s a late-morning conference call. BUT, considering the incredible body language in the PR...
“Our backlog continues to reflect the extraordinary demand that we are experiencing in our most important markets, increasing sequentially by over $1 billion.
For the first time, our backlog has exceeded $8 billion, and it is $2.4 billion higher than it was at this time last year.
Our strong earnings, backlog surge, and strong pipelines clearly demonstrate continued strength in our execution, customer relationships, and prospects. Overall, we remain optimistic that we will achieve continued success into 2026.”
…our bet is simple: this inflection point is so powerful that even the historically conservative FIX management team will be hard-pressed to kitchen-sink the forward fundamental outlook.
Here is a chart illustrating the consistent growth in backlog the last 15 years. Yes, much of it is inorganic, but the J-curve this year is almost 97% organic growth. The inflection point for FIX is actually accelerating when viewed through this prism:
We plan to buy aggressively on the first flush tomorrow morning, as we think FIX does a GEV-type move and J-curves sharply higher to $725-$750 by the fall.
We will look to trim half to two-thirds of our position on a quick move to $700-$750 in the near-term, with a view to then hold our remaining third for the long-term potential move to $1,000 the next 12 months.
STOP LOSS: We will use a STOP 10% down from cost, as our conviction level is a 10 this works, most likely immediately.
Given its place in the Industrial sector, and the fact more than half its revenues are derived from new-construction, FIX is obviously exposed to macro-economic risks. Should the macro landscape change, FIX will certainly be impacted. However, with so many of its projects connected to mission-critical technology and healthcare, we think the risks here are somewhat mitigated.
The ever-changing tariff situation has the potential for supply chain risks as well. Should the cost of parts/supplies increase due to tariffs, this would affect FIX’s margin profile. Something to be cognizant of as the year progresses.
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Disclosure: We are long FIX stock. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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