Carrier Shares Getting More Interesting, But Sentiment Is A Bigger Threat

 

It’s pretty typical for Wall Street to get all hot and bothered about emerging or future trends and then bail out ahead of the actual realization of those trends (“buy the rumor, sell the news”). It’s also entirely typical for the Street to bail out of names that no longer have differentiated near-term revenue growth and/or margin leverage.

That puts Carrier Global (CARR) in a tricky spot vis a vis the share price and investment prospects. Valuation is definitely more reasonable here than it has been in a while (courtesy of a nearly 25% pullback from its 52-week high), but residential HVAC comps are going to get tough and real margin leverage could be a couple of years out.

As I said in a recent article on Trane (TT), my issue here is more about sentiment and the risk of the Street avoiding Carrier as a “played out” story. Still, I like the growth opportunities here, and this is definitely a name to watch, if not seriously consider today as a buy-the-dip idea.

 

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Carrier Shares Getting More Interesting, But Sentiment Is A Bigger Threat

Successful Execution Can Support A Higher Value For Carrier Global Shares

The entire HVAC-R space has held up relatively well through this downturn, and while there are valid concerns about the strength of non-resi new-builds over the next couple of years, commercial HVAC is more of a replacement market than a new-build market. On top of that, plans aimed at curbing emissions and reducing power consumption should drive meaningful green retrofit activity.

For Carrier Global (CARR), there’s a little more to the story. Largely a hardware play on the HVAC-R and fire/security markets, management is working to build its share in Applied HVAC, as well as in other areas like controls/building management, and Fire/Security field services. If management can execute on what are some ambitious targets, while simultaneously driving better operating margins through the Carrier 600 program, there could still be upside in what has been a recent strong performer in a popular sub-sector.

 

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Successful Execution Can Support A Higher Value For Carrier Global Shares