Comfort Systems USA (FIX)

Total return at 5 years: 7.2%/year = 6.9% appreciation + 0.3% dividend. The target price ($2,285) is ex-dividend; the $28 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $1,688 · Multiples $1,858) exceeds the market price ($1,638).

Today — fairly valued: at $1,638 trades ~11.8% below its value discounted to today (~$1,858); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($2,285) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$1,154.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($1,638) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The implied growth (14.2%/year) is in line with our base case (15.0%/year) → the price is consistent with the projection.

That growth implies ~$2.6 bn of owner earnings in year 5 (vs ~$2.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on EV/EBIT. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = TTM to Jun-2026 (rolling grid, ttmEnd 30-Jun-2026). The 8-K of 23-Jul-2026 (Item 2.02) carries no numerical revenue or earnings per share guidance for FY2026 —the release offers only qualitative commentary: demand sustained at high levels and favorable expectations for the rest of 2026 and much of 2027— so the path anchors to the filing's trajectory (R1), not to guidance. The year-over-year trajectory is noisy and accelerating (FY23 25.8% · FY24 35.0% · FY25 29.5% · TTM 46.1%), with the TTM peak inflated by two components with names of their own and verifiable: (a) the 2025 acquisitions (Century, Right Way, Feyen Zylstra, Meisner) not yet lapped in the comparison, and (b) the one-off boom in the technology/data-center sector (North Carolina +US$267.5M, Texas electrical +US$649.3M). Year 1 starts at 30%, within the FY23-FY25 historical band (25.8%-35.0%) but below the TTM peak, and decays smoothly (R3) to 8% in year 5 —the ceiling of the industrial range (4-8%), supported by the backlog (+99.3% year over year at Dec-2025, and still growing to US$14.06bn at Jun-2026) and a fragmented TAM of ~US$700,000 million. The bear case stresses year 1 to 12% (not «today carries on unchanged»), reflecting a marked cooling of the data-center cycle. Margins: ebitMargin rises from 16.5% (TTM) to a peak of ~17.2% (year 2) on the mix shift toward technology/electrical, and moderates to 16.4% by year 5 (operating leverage is not extrapolated indefinitely). ocfMargin normalizes downward from 22.7% (TTM, inflated by the float of advance billing growing with revenue) toward ~16.8% in year 5. capexMaint ≈ D&A (the standard convention); TTM D&A was derived from the Adjusted EBITDA reconciliation in the 8-K (depreciation + amortization, not just the XBRL depreciation concept, which excludes the amortization of acquisition intangibles): FY2025 total 141,959K + H1'26 82,270K − H1'25 68,772K = 155,457K. ΔNWC (dNWC) uses the real FY2025 figure from the cash flow statement reconciliation (a cash use of US$67.667M) and not the swing of the half to Jun-2026 (a cash source of ~US$576M), because that swing is inflated by the one-off acceleration in advance billing in the second quarter and is not a sustainable rate for the owner earnings base. accumulateCash=true with real fcfLtm/buybackLtm (XBRL): cash went from US$981.9M (Dec-2025) to US$1,854.8M (Jun-2026) in one half, direct evidence of retention (not reinvestsExcess). Buybacks of ~1.1% of the share count in FY2025 —at the edge of materiality— but captured by the retention cascade (accumulateCash), so no sharesPath is added (avoiding double counting, §6).

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (EV falls as cash increases). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $2,285 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $1,638, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $2,285 in 5 years plus $28 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $1,858. Against the current market price ($1,638), the margin of safety is 11.8% (trades below the maximum → there is margin) and the total return at that price would be 7.2% annually.

• Entry multiple. 30× EV/EBIT today, well above the 16x exit multiple
• Decline in the stock. A decline in the stock with no fully explanatory event identified
• Expected return. +7% annually over 5 years in the base case

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (93%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC. ~103% on the balance sheet's invested capital, far above the 10% bar
• Cash conversion. TTM OCF inflated by the advance-billing float; normalize before extrapolating
• Operating margin. Doubled from FY22 (6.1%) to TTM (16.5%) on mix shift toward technology and scale

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Growth is explained by the volume of projects in progress (8,427 at year-end 2025) multiplied by the average contract value (~$2.9 million), with the backlog as a leading indicator: backlog-to-revenue conversion typically occurs within 6-9 months, the average project life cycle.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• TTM growth. +46% year-over-year, elevated by recent acquisitions and the data center boom
• Organic growth. ~26% same-store in FY2025 ex-acquisitions, still very strong
• Sustainability. The path decelerates toward a terminal 8%; the current pace is not extrapolable without adjustment

• Capital-light model. ROIC far above the 10% bar, supported by negative working capital (advance billing)
• Technology concentration. 45% of 2025 revenue depends on the technology sector (data centers); a cooling of the cycle would hit hard
• Contracted backlog. Backlog +99% year-over-year as of Dec-2025 and continued growing through Jun-2026 ($14.06bn); 6-9 months of revenue visibility
• Fragmented industry. Competes against thousands of local contractors; much of the work is competitively bid on price

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $1.8 bn
• ✓Interest coverage (EBIT / interest)205.2x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 93% of ROIC
• ✓Value creation (ROIC − 10% bar)+93pp
• !Malinvestment test (capex vs incremental ROIC)Capex/D&A 2.5x
• !Float / working capitalConsumes cash $0.1 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.3% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net cash. ~$1.80bn of net cash, minimal debt (~$54M)
• Float funds growth. Advance billing and payment retention generate negative working capital
• Surety bond liquidity. Access to surety bonds is a necessary condition to compete for large projects

• Continuity. CEO since 2011, with the company since 2003
• Capital allocation. Prioritizes retaining cash and bolt-on M&A over aggressive buybacks or dividends
• Insider ownership. Ownership detail pending verification in the DEF 14A proxy

• A decline in the stock with no event identified in the available filings, on a business still reporting record results
• The market is currently paying a multiple (30× EV/EBIT) that requires current growth, elevated by acquisitions and the data center cycle, to hold for several years
• An installation contractor has traditionally been read as a mature, cyclical industrial business; the recent re-rating from the data center cycle may not be fully digested by the market

It trades close to intrinsic value, far from the required margin of safety.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -10%/year (-40% total): the margin of safety protects the downside. The bull (+16%/year, +110% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Technology concentration. 45% of revenue depends on the data center spending cycle
• Construction cycle. Demand follows the construction cycle with a lag, in both directions
• Fixed-price contract risk. Estimation errors under the cost-to-cost method can reverse profit already recognized
• Customer concentration. The top customer represents 12.8% of consolidated 2025 revenue

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 103% above the 10% bar, but the margin is limited (+12%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 15% at a multiple/growth of 2.0 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 3% (EBIT/EV) + ROIC 103% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 14%, in line with our 15%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -10%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: efficient scale, switching costs, cost advantage, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 14%, within what we project (15%) — the story squares with the numbers.