Heat waves can make us uncomfortable, but that doesn’t mean you have to be unprofitable. Air conditioning stocks can benefit from record-high temperatures around the world, and three of them have something special for value and income investors.
My criteria for this list of top air conditioning stocks are that they must offer a decent dividend, shouldn’t be overvalued, and ought to have at least a couple of positive recent reviews from the analyst community. That’s a lot to ask for, but selective stock picking can bring success in the long term, and this cool selection of air conditioning stocks should help opportunistic investors beat the heat in 2023’s second half.
Carrier Global (NYSE:CARR)
Florida-headquartered Carrier Global offers heating, ventilating, and air conditioning (HVAC) technologies on a worldwide scale. The company also provides intelligent climate and energy solutions, including a “suite of solutions to help keep people safe from poor outdoor air quality in the wake of the Canadian wildfires.”
Speaking to value investors now, Carrier Global’s GAAP trailing 12-month P/E ratio of 18.25x seems quite reasonable, but is it really? I’d say yes, as the sector median P/E ratio is 20.1x. Meanwhile, income-focused investors should appreciate the fact that Carrier Global pays a 1.31% annual dividend yield.
We’ll look at the analyst consensus estimate for CARR stock in a moment, but suffice it to say that it’s not difficult to find positive reviews of Carrier Global. Barclays (NYSE:BCS) analyst Julian Mitchell raised his price target from $53 to $54 and kept an Overweight rating on the shares, expecting a number of positive 2023 guidance revisions and third-quarter guides that are at least in line with the Street.
Furthermore, Citigroup (NYSE:C) analyst Vladimir Bystricky raised his price target on Carrier Global stock from $45 to $52, claiming “still durable” demand trends for U.S. industrials should remain supportive of relatively solid results versus expectations.
What is the Price Target for CARR Stock?
On TipRanks, CARR is a Moderate Buy based on seven Buys and six Hold ratings assigned in the past three months. Nevertheless, the average Carrier Global stock price target is $50.92, implying 6.5% downside potential.
Lennox International (NYSE:LII)
Hailing from Texas, Lennox International has a vast presence in the global HVAC equipment and services market. The company has over 13,000 full-time employees and recently opened a renovated manufacturing facility in Iowa.
Does LII stock present good value among air conditioning stocks? It’s not too bad, as Lennox International’s P/E ratio of 23.39x isn’t far above the sector median P/E ratio of 20.12x. However, if you’d rather wait for Lennox stock to pull back to somewhere around $300 (it’s currently near $340), that’s understandable. As far as dividends are concerned, Lennox pays 1.27% per year, so you can sit back and collect the distributions every three months.
Additionally, some financial experts are bullish on LII stock now. For instance, William Blair analyst Ryan Merkel upgraded the stock from Market Perform to Outperform. Blair sees upside to estimates on a commercial margin recovery, as well as a price/cost lift in 2024, potentially benefiting Lennox International.
Also, Wells Fargo (NYSE:WFC) analyst Joseph O’Dea reiterated an Overweight rating on LII shares, envisioning modest upside risk to Lennox’s second-quarter EPS (meaning EPS can come in higher than expectations) and modest guidance revisions.
What is the Price Target for LII Stock?
According to TipRanks’ analyst rating consensus, LII comes in as a Moderate Buy based on four Buys, four Holds, and one Sell rating. The average Lennox International stock price target is $307, implying 9.8% downside potential.
Trane Technologies (NYSE:TT)
Trane Technologies is an Irish HVAC equipment and services company, and it’s an industry mammoth with roughly 39,000 full-time employees. Trane is notable for its high-efficiency heat pumps and its use of vegetable oil as a sustainable alternative to diesel fuel.
As it turns out, Trane Technologies offers the least compelling value but the highest dividend yield of the three air conditioning stocks mentioned today. Trane’s P/E ratio of 25.15x is somewhat higher than the sector median P/E ratio of 20.12x, but not by an extremely wide margin. Income collectors should be glad to hear, however, that Trane Technologies provides its shareholders with a 1.45% annual dividend yield.
Much like with Lennox International, O’Dea of Wells Fargo envisions modest upside risk to Q2 EPS and modest guidance revisions for Trane Technologies. He raised his price target on TT stock from $172 to $181. Moreover, Barclays analysts lifted their price target on Trane stock from $201 to $210, with the expectation that the tone from most of the company’s management teams will likely remain upbeat.
What is the Price Target for TT Stock?
On TipRanks, TT stock is a Hold based on three Buys, five Holds, and two Sell ratings. The average Trane Technologies stock price target is $190.11, implying 4.7% downside potential.
Conclusion: Should You Consider Air Conditioning Stocks?
High temperatures can bring market opportunities, and most likely, people around the world will keep their air conditioners running regardless of economic conditions. So, whether it’s Carrier Global, Lennox International, or Trane Technologies stock, you can find a worthy air conditioning stock – or even two or three of them – to consider adding to your portfolio this summer.