Investors Should Get Comfortable with Comfort Systems USA When it comes to investing in homegrown companies it doesn't get much more patriotic than Comfort Systems USA (NYSE:FIX). The provider of building construction and maintenance services has been around for almost 25 years.

When it comes to investing in homegrown companies it doesn't get much more patriotic than Comfort Systems USA (NYSE:FIX). The provider of building construction and maintenance services has been around for almost 25 years. But it has just recently gained notoriety as a beneficiary of the recovery underway in America's industrial sector.

In recent weeks Comfort Systems stock has surged past its previous record highs of 2018 on some record results and optimism around the Biden administration's infrastructure ambitions. As the President looks to fix the country's aging buildings and transportation systems, investors will have an easy time remembering 'FIX' as a good way to go.

What Does Comfort Systems USA Do?

It's hard to point to one thing that Comfort Systems USA does because its actually a conglomerate of 37 different companies all of which are located in the United States. Together the companies offer mechanical, electrical, and plumbing (MEP) installations and services for non-residential buildings of all shapes and sizes.

From planning and engineering to installation and maintenance, customers across the nation reply on Comfort Systems to keep their wires and pipes operating safely and efficiently. Most of the company's work is done inside manufacturing plants, healthcare facilities, office buildings, retail and restaurant complexes, schools, and government buildings.

Over the years Comfort Systems has been able to grow by expanding its lineup of building services and by bringing new businesses into the fold through acquisition. Today it has three times as many operating companies as it did when it was founded. Its service diversification, national presence, and potential to further build out its network make it an interesting play on the domestic economic rebound.

The market got a glimpse of this rebound in Comfort System's most recent results. Although revenue was down 2.9% to $699 million, adjusted earnings per share (EPS) increased 7.6% and operating cash flow improved significantly to $70.1 million. Both the net income and operating cash flow figures were company records. More importantly, the order backlog grew sequentially to $1.51 billion and is closing in on its pre-pandemic level

What are the Growth Prospects for Comfort Systems USA?

As the COVID-19 related headwinds continue to subside, Comfort Systems should see bookings rise, its backlog swell, and more projects get off the ground. In its most recent report management noted "good ongoing bidding activity", a reflection of improving project demand.

A big trend in the industrial sector in the wake of COVID-19 is indoor air quality. Businesses are placing greater emphasis on clean air circulation to keep their employees and customers safe and healthy. This of course falls right into the lap of a company like Comfort Systems.

But there may be an even bigger catalyst at play here. If President Biden's $2.3 trillion infrastructure plan goes through, commercial and industrial construction activity is likely to be robust for at least the remainder of this decade. This means that demand for heating, ventilation, and air conditioning (HVAC) systems will be solid not to mention demand for related maintenance and repair services. Upgrades to educational institutions and government buildings may be an especially strong source of demand. Together customers in these sectors accounted for 23% of Comfort System sales last year.

Investors can also expect Comfort Systems to continue to add to its stable of companies through acquisition. Earlier this year, it agreed to purchase construction and industrial services company Tennessee Electric which is forecast to boost annual EBITDA by as much as $9 million. Look for similar add-ons later this year and into next year that can increase the company's market size and capitalize on the recovering economy.

What Makes Comfort Systems USA Stock a Buy?

Comfort Systems is a mid-cap stock with a market value just shy of $3 billion. It can be viewed as both a play on industrial sector growth and a potential long-term winner of the Biden infrastructure plan. In the near-term, more customers will be moving forward with maintenance projects and services that went on the backburner last year. Over the long haul, domestic infrastructure development should support heated demand for HVAC services.

An underappreciated aspect of a Comfort Systems investment is the steady nature of its service revenue. Services revenue has gradually increased in each of the last five years including last year when it was difficult to get into some buildings. Its only about 5% of overall revenue but will become a bigger part of the business as its maintenance base grows.

The consensus estimates for 2021 and 2022 earnings have been adjusted sharply higher since the fourth quarter report as analysts play catch up with the record performance and anticipate stronger bookings and projects starts as economic activity picks up in the back half of the year.

Comfort Systems stock also offers a bit of a dividend that has been hiked in each of the last eight years. The yield is still less than 1% but its good to see some profits are being returned to shareholders.

Anyway, you build the investment thesis, Comfort Systems looks like a nice fixer upper for the value-oriented portfolio. The stock is trading at less than 1x sales and a below industry forward P/E of 23x.

Investors looking for a more optimal entry timing may wish to wait until the stock price returns to its 50-day moving average where has received good support in 2021. This would provide an added level of comfort.