In Search Of A Comfort Zone

Given the fundamentals, shares of Comfort Systems USA (FIX) should be on easy street. This leading provider of heating, ventilation, and air-conditioning (HVAC) systems has either exceeded or met consensus earnings estimates in the past seven quarters, with sales running at an annual rate of $1.2 billion. And most analysts rate it a buy. So why is Comfort trading near its low, at 12 7/8, from 20 1/2 in November?

Blame it on the market's current aversion to small-cap stocks. But the bulls aren't too concerned. "We see no apparent company-specific issue that would account for the weakness in the stock," says Alex Rygiel of Friedman, Billings, Ramsey, an investment firm in Arlington, Va. The stock is trading at just 9.5 times his 1999 estimate of $1.35 a share and 7.8 times his 2000 estimate of $1.65. It deserves to trade at a price-earnings ratio of 15, he says. That would mean a stock price of 20, based on the company's 20% to 25% yearly earnings growth.

One more thing: Several utilities have been acquiring HVAC companies since the onset of deregulation, and some investment pros think Comfort is a buyout target. "Comfort would be a wonderful acquisition for a large utility," says Marc Baylin, analyst and portfolio manager at T. Rowe Price Associates, which owns nearly 7% of the stock. Based on the company's earnings before interest payments and taxes, the stock is worth 28 a share, says Baylin.

In Search of a Comfort Zone

Comfort CEO Fred Ferreira wouldn't say whether he has been approached. "Our goal," he says, is to build "the largest national HVAC company, growing at a 14% yearly growth rate." Already, Comfort has signed strategic pacts with several utilities, including Sempra Energy and Arizona Public Service, to sell energy-efficiency products and services to commercial and industrial customers. And Comfort itself has been busy snapping up other companies: It has bought 67, with total sales of $910 million, since going public in July, 1997. Comfort now operates at more than 100 locations in 72 cities and 28 states.

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