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More Than Hot Air About Aaon

Inside Wall Street


What's so hot about AAON? This maker of rooftop heating, ventilation, and air-conditioning (HVAC) systems "is on the fast lane and growing," says Jerry Levine, director of research at Commonwealth Associates, a New York securities firm. AAON's systems are designed for structures no taller than 10 stories, such as malls. Some $19 million, or 42%, of AAON's business comes from Wal-Mart Stores, for which it makes customized units that meet the giant retailer's requirements. Kmart is the second-largest customer, accounting for $6 million, or 12%, of sales. The company has been widening its customer list to include other big retailers, such as Home Depot, Target Stores, and Mervyn's.

"AAON's stock is still way undervalued, based on the company's fast top-line and bottom-line growth in a niche business," asserts Levine. Currently trading at 10, the stock should hit 15 in the next six months and climb to 20 in 12 months, he predicts.

Rooftop HVAC units are a nearly $800 million market, of which AAON has only about 6%. The biggest in the industry is Carrier, estimated to control 25% of the market. But AAON's products are higher-priced, with a lot of additional uses that cater to specific customer demands. "That's the fast-growing part of the business," says Levine, who expects earnings of 75 cents a share this year, on projected sales of $63 million, and 90 cents in 1995, on sales of $75 million. It earned 48 cents (including a one-time charge) on sales of $45.4 million in 1993. Says a confident Norm Asbjornson, AAON's president: "Next year, we'll control 10% of the market."GENE G. MARCIAL

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