This newsletter will cover: 1. Macroeconomic Highlights 2. Industry Insights 3. Our Undervalued Stock of the week: Carrier Global (NYSE: CARR).
Check out Episode 3 of the ClosingBell Show!
🔎 Macro-Watch
European Union Energy Crisis- The EU proposed a 15% energy cut as many countries in Europe begin to ration energy. Some even within the country suggest to utilize basketball courts as universal warming centers to save energy.
Trouble in China - President Xi Jinping of China has a new set of troubles on his plate with middle class homeowners boycotting paying their mortgages on unfinished properties. This boycott spans across 91 cities in China and amongst many other macroeconomic headwinds, threatens China’s 5.5% annual growth target.
Housing Cool Down - United States housing sales are down 21% as mortgage applications hit their lowest point since 2000 according to the National Association of Realtors
🏛️ Industry Insights: Industrials - HVAC (Heating, Ventilation, Air Conditioning)
HVAC companies are generally classified as cyclical in nature meaning they are affected by systemic market conditions and typically move in sync with market cycles
With the rise of global warming, HVAC stocks begin to look more appealing (more below)
Carrier Global (NYSE: CARR)
Carrier Global has a Closingbell Valuation Index of 41% making it relatively undervalued against its peers.
About Carrier (NYSE: CARR)
Introduction Originally a part of United Technologies (now merged with Raytheon), Carrier was spun off to create a separate focused company that provides HVAC systems, refrigeration, fire, security, and building automation tools worldwide.
Differentiator Compared to its peers, Carrier Global is diversified in many product and service streams in addition to HVAC service and supply including: home automation, fire safety, and security services.
Notable Developments
- In November 2021, President Biden passed the $1.2T Bipartisan Infrastructure Bill which in part claims to address climate change
- In March 2021, Carrier released a publication regarding their vaccine storage services
📈 Price Forecasts by Analysts
The current consensus among 24 polled investment analysts is to OVERWEIGHT stock in Carrier Global Corp.
The 24 analysts offering 12-month price forecasts for Carrier have a median price target of $45.00, with a high estimate of $58.00 and a low estimate of $35.00. The median estimate represents a +17.58% increase from the last price of $38.27.
Environmental Relevancy
Recent Developments
Heat Waves plagued Europe as many countries battled forest fires and heatwave related deaths
London recorded its hottest day in history
More than 300 people were found dead from heatwaves and many more hospitalized during a 10 day span
Carrier’s Relevancy
Over the past decade, the sentiment surrounding HVAC has shifted from luxury to necessity. As more people suffer the brutal heatwaves and temperatures rise, the air conditioning segment brings both comfort and livability in almost any hot setting
With the heightened awareness surrounding COVID-19 over the past 2 years, the increasingly warmer temperatures, the air conditioning/filtration segment is set to see the most growth
As the world heats up, logistical refrigeration is increasingly becoming more valuable. Carrier was also responsible for creating cooling systems for the COVID-19 mRNA vaccines and provided a supply chain logistics graphic for each step in the process:
Market Metrics and Valuation
Industrials typically utilize a multitude of valuation methods. HVAC companies with strong Free Cash Flow (FCF) and earnings may consider Discounted Cash Flow (DCF) as a valuation method to calculate the intrinsic value of the stock.. You may also compare valuations of Price to Earnings (P/E) of companies within similar industries. Generally speaking, the lower the P/E, the “cheaper” the valuation.
✅ Of the four major players in the HVAC Industry, Carrier trades at the lowest P/E multiple
✅ The lowest The implied discount rate from its intrinsic value is over 51%
✅ Return on Equity is higher than market average
Risks to Consider
❌ Competition is stiff as many HVAC companies populate the space and are continuously innovating ❌ Carrier Global has extremely high amounts of debt relative to equity that it took on from the United Technologies spinoff ❌ Carrier Global has a large dependence on the U.S markets with over 50% of sales in 2021 being from the United States
Carrier Global to many may seem like a simple or a “boring company”. However, this “boring” company since IPO in 2020, has outperformed the S&P 500 by over 150%! The warming global climate combined with the sentiment shift of luxury to necessity and selective discounted valuation metrics such as a low price to earnings compared to its peers, make Carrier our stock of the week!
David vs Goliath: Uber Report
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Our 30+ page report contains:
A breakdown of the business model, industry, and the market they operate in;
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Post a rating with your opinion about Carrier Global! Is it a buy, sell or hold? Why do you think that?
Thanks for taking the time to read this! See you next week.
Regards, Luca CEO, Closingbell
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Disclaimer: The information that Closingbell provides is general in nature as it has been prepared without taking account of your objectives, financial situation or needs. It does not constitute a recommendation to buy or sell any stock. This email is not intended as legal, financial or investment advice and should not be construed or relied on as such. Closingbell is not responsible for any damages. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Closingbell has no position in any stocks mentioned.
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