Servers in data centers use a large amount of heat and require specialized cooling systems. Building and cooling services company Comfort Systems USA (FIX) is tapping into the growing market for these much-needed systems.
Comfort Systems provides mechanical, electrical, plumbing and ventilation services for data centers, pharmaceutical, health care and industrial facilities. It employs around 18,000 plumbers, welders, pipe fitters and electricians, plus technology for robotic welding. It also makes modular cooling units used in data centers.
The IBD Big Cap 20 and IBD 50 company sees hefty demand for its construction business stretching into 2026. Comfort Systems also sees opportunity in its modular delivery business, used primarily for data centers, which is currently only about 17% of its overall business.
The company builds modular cooling units used in data centers, which can be shipped for on-site construction by workers or even robots.
Comfort Systems ranks No. 1 out of 13 stocks in IBD's Building-A/C & Heating Products industry group.
Comfort Systems Back Near Record High
The stock is forming a late-stage cup base with a 510.79 buy point, according to MarketSurge pattern recognition. That's a mark of leadership that may help offset the risk of being a late-stage pattern.
Shares retook the 10-week moving average in a 14% climb the past week as they try to complete the right side of the cup. The bounce off the 10-week line offered an early entry around 465.
Its relative strength line has reached a 52-week high, as shown by the blue dot on its IBD MarketSurge charts. The stock has climbed a healthy 17% so far in January, after more than doubling in 2024 and more than quadrupling since January 2023.
Its 1.5 up/down volume ratio indicates positive demand for the stock over the last 50 days.
Data Center Cooling Provider Shows Robust Profit Growth
Comfort Systems beat third-quarter earnings estimates but missed sales forecasts on Oct. 24. It saw an increase in its technology-sector sales from data centers and chip plants. Its average project takes six to nine months to complete.
"We are happy to report record earnings and cash flow this quarter," said President and CEO Brian Lane in the earnings release. The company also reported a backlog of $5.68 billion as of Sept. 30, down from $5.77 billion on June 30.
Third-quarter earnings grew 49% following gains of 78% and 94% in the prior two quarters. And its Q3 sales lifted 32% after rising 31% and 40% in Q1 and Q2.
Forecasts call for a 30% pop in its Q4 sales, then tapering to 14% and 9% over the following two quarters. Analysts estimate 2024 earnings to grow 64% after a 65% burst in 2023. For this year, the consensus estimate is for a 20% earnings increase.
Its IBD Earnings Stability factor of 15 out of 99 possible (lower is better), shows stable earnings over the last three to five years. It also holds a perfect 99 EPS Rating and a 98 Composite Rating.
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