Comfort Systems (FIX)

HVAC and electrical contractor Comfort Systems (NYSE:FIX) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 20.1% year on year to $2.17 billion. Its GAAP profit of $6.53 per share was 36.6% above analysts’ consensus estimates.

Company Overview

Formed through the merger of 12 companies, Comfort Systems (NYSE:FIX) provides mechanical and electrical contracting services.

Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.

Comfort Systems USA's top competitors include EMCOR (NYSE:EME), Johnson Controls (NYSE:JCI), and Trane Technologies (NYSE:TT).

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Comfort Systems’s sales grew at an incredible 21.8% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Comfort Systems’s annualized revenue growth of 27.8% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Comfort Systems’s backlog reached $8.12 billion in the latest quarter and averaged 29.5% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Comfort Systems’s products and services but raises concerns about capacity constraints.

This quarter, Comfort Systems reported robust year-on-year revenue growth of 20.1%, and its $2.17 billion of revenue topped Wall Street estimates by 10.6%.

Looking ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Comfort Systems has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 20% gross margin over the last five years. Said differently, Comfort Systems had to pay a chunky $80.04 to its suppliers for every $100 in revenue.

Comfort Systems’s gross profit margin came in at 23.5% this quarter, up 3.4 percentage points year on year. Comfort Systems’s full-year margin has also been trending up over the past 12 months, increasing by 2.5 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Comfort Systems has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.9%, higher than the broader industrials sector.

Looking at the trend in its profitability, Comfort Systems’s operating margin rose by 5.8 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, Comfort Systems generated an operating margin profit margin of 13.8%, up 3.6 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Comfort Systems’s EPS grew at an astounding 41.3% compounded annual growth rate over the last five years, higher than its 21.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Comfort Systems’s earnings can give us a better understanding of its performance. As we mentioned earlier, Comfort Systems’s operating margin expanded by 5.8 percentage points over the last five years. On top of that, its share count shrank by 3.7%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Comfort Systems, its two-year annual EPS growth of 69.4% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q2, Comfort Systems reported EPS at $6.53, up from $3.74 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Comfort Systems’s full-year EPS of $19.46 to grow 1.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Comfort Systems has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.8% over the last five years, slightly better than the broader industrials sector.

Comfort Systems’s free cash flow clocked in at $222.2 million in Q2, equivalent to a 10.2% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Comfort Systems’s five-year average ROIC was 28%, placing it among the best industrials companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Comfort Systems’s ROIC has increased significantly. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Comfort Systems is a profitable, well-capitalized company with $331.7 million of cash and $73.02 million of debt on its balance sheet. This $258.7 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Comfort Systems blew past analysts’ backlog expectations this quarter. We were also excited its revenue and EPS both outperformed Wall Street’s estimates by a wide margin. With regards to negatives, there was not much to pick on. Zooming out, we think this was a solid print. The stock traded up 13.7% to $639.97 immediately after reporting.

Updated: July 27, 2025 at 11:11 PM EDT

Before deciding whether to buy Comfort Systems or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

There are multiple reasons why we think Comfort Systems is an elite industrials company. For starters, its revenue growth was exceptional over the last five years. And while its low gross margins indicate some combination of competitive pressures and high production costs, its backlog growth has been marvelous. On top of that, Comfort Systems’s expanding operating margin shows the business has become more efficient.

Comfort Systems’s P/E ratio based on the next 12 months is 34.4x. Looking at the industrials space today, Comfort Systems’s qualities as one of the best businesses really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $580.67 on the company (compared to the current share price of $689).