The end of an earnings season can be a great time to discover new stocks and assess how companies are handling the current business environment. Let’s take a look at how CSW (NASDAQ: CSW) and the rest of the hvac and water systems stocks fared in Q3.
Many HVAC and water systems companies sell essential, non-discretionary infrastructure for buildings. Since the useful lives of these water heaters and vents are fairly standard, these companies have a portion of predictable replacement revenue. In the last decade, trends in energy efficiency and clean water are driving innovation that is leading to incremental demand. On the other hand, new installations for these companies are at the whim of residential and commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.
The 9 hvac and water systems stocks we track reported a strong Q3. As a group, revenues beat analysts’ consensus estimates by 3.6% while next quarter’s revenue guidance was 0.8% below.
In light of this news, share prices of the companies have held steady as they are up 1.8% on average since the latest earnings results.
CSW (NASDAQ: CSW)
With over two centuries of combined operations manufacturing and supplying, CSW (NASDAQ: CSW) offers special chemicals, coatings, sealants, and lubricants for various industries.
CSW reported revenues of $277 million, up 21.5% year on year. This print fell short of analysts’ expectations by 0.5%. Overall, it was a softer quarter for the company with a significant miss of analysts’ EPS estimates and a slight miss of analysts’ revenue estimates.
CSW achieved the fastest revenue growth of the whole group. Unsurprisingly, the stock is up 2.3% since reporting and currently trades at $249.63.
Is now the time to buy CSW? Access our full analysis of the earnings results here, it’s free for active Edge members.
Best Q3: Northwest Pipe (NASDAQ: NWPX)
Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ: NWPX) is a manufacturer of pipeline systems for water infrastructure.
Northwest Pipe reported revenues of $151.1 million, up 16% year on year, outperforming analysts’ expectations by 14.4%. The business had an incredible quarter with a beat of analysts’ EPS estimates and an impressive beat of analysts’ EBITDA estimates.
Northwest Pipe delivered the biggest analyst estimates beat among its peers. The market seems content with the results as the stock is up 3.3% since reporting. It currently trades at $57.40.
Is now the time to buy Northwest Pipe? Access our full analysis of the earnings results here, it’s free for active Edge members.
Lennox (NYSE: LII)
Based in Texas and founded over a century ago, Lennox (NYSE: LII) is a climate control solutions company offering heating, ventilation, air conditioning, and refrigeration (HVACR) goods.
Lennox reported revenues of $1.43 billion, down 4.8% year on year, falling short of analysts’ expectations by 4.3%. It was a slower quarter as it posted a significant miss of analysts’ revenue estimates.
Lennox delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 11.3% since the results and currently trades at $487.39.
Read our full analysis of Lennox’s results here.
A. O. Smith (NYSE: AOS)
Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE: AOS) manufactures water heating and treatment products for various industries.
A. O. Smith reported revenues of $942.5 million, up 4.4% year on year. This number met analysts’ expectations. Taking a step back, it was a slower quarter as it logged full-year revenue guidance missing analysts’ expectations and full-year EPS guidance missing analysts’ expectations.
The stock is down 4.1% since reporting and currently trades at $65.79.
Read our full, actionable report on A. O. Smith here, it’s free for active Edge members.
Advanced Drainage (NYSE: WMS)
Originally started as a farm water drainage company, Advanced Drainage Systems (NYSE: WMS) provides clean water management solutions to communities across America.
Advanced Drainage reported revenues of $850.4 million, up 8.7% year on year. This print beat analysts’ expectations by 6.6%. Overall, it was an exceptional quarter as it also recorded a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ adjusted operating income estimates.
Advanced Drainage had the weakest full-year guidance update among its peers. The stock is up 9.8% since reporting and currently trades at $147.85.
Read our full, actionable report on Advanced Drainage here, it’s free for active Edge members.
Market Update
As a result of the Fed’s rate hikes in 2022 and 2023, inflation has come down from frothy levels post-pandemic. The general rise in the price of goods and services is trending towards the Fed’s 2% goal as of late, which is good news. The higher rates that fought inflation also didn't slow economic activity enough to catalyze a recession. So far, soft landing. This, combined with recent rate cuts (half a percent in September 2024 and a quarter percent in November 2024) have led to strong stock market performance in 2024. The icing on the cake for 2024 returns was Donald Trump’s victory in the U.S. Presidential Election in early November, sending major indices to all-time highs in the week following the election. Still, debates around the health of the economy and the impact of potential tariffs and corporate tax cuts remain, leaving much uncertainty around 2025.
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