Is Carrier Global Stock A Buy?

Is Carrier Global Stock a Buy? Carrier (NYSE:CARR) is a heating and air conditioning company that stayed private for over a century in business (sorta). It’s one of the underrated initial public offerings (IPOs) this decade and a rare one in that it gave retail investors an opportunity to make money.

Not only does it sell air conditioners, but Carrier also invented the modern air conditioner. It’s a leader in heating, ventilation, and air conditioning (HVAC) systems and services both residential and commercial markets.

It spun off from United Technologies after being acquired 41 years earlier. This created a multi-billion-dollar company focused on indoor climate control, foodservice equipment, and security technologies.

Regardless of economic conditions, climate control is important, and ventilation found itself in the spotlight this past year when combined with a conservative IPO pricing strategy, it positioned itself as a once-in-a-lifetime growth and dividend stock.

Let’s find out if Carrier will heat investors’ portfolios up.

What Does Carrier Global Do?

While it seems essential these days, air conditioning is a relatively new technology created at the beginning of 1900s. Carrier cornered the residential market by the 1950s and soon started a streak of mergers and acquisitions.

Carrier Global today is an HVAC powerhouse and became the largest company in its market in 2001. The company acts as an umbrella encompassing dozens of commercial and residential brands.

It again took the spotlight during the Trump administration as the president-elect made it the mascot for American manufacturing plants closing.

During the pandemic the company was faced with further challenges and was forced to streamline its operations to survive.

And the company isn’t the only one spun off from United Technologies in 2020. Otis Worldwide (OTIS), originally called the Otis Elevator Company, was also spun off.

Each has approximately a $30 billion market capitalization, but Carrier may well be the better deal between the two. That’s all good for IPO investors, but can you still benefit from the company’s predictable revenue streams?

Is Carrier Global Stock A Buy?

Carrier Global was valued at $18 billion during its March IPO and grew to over $32 billion by the end of the year. The company holds the distinction of being the first company to go public at the onset of the pandemic.

Even with a P/E ratio of over 21x, it’s considered to be trading at a discount relative to rival HVAC companies.

The company has paid dividends each quarter since – investors earned $0.08 in June and October, along with $0.12 in December.

That puts it at a 1.27 percent annual dividend yield of $0.40 for the year and an estimated $0.48 per year moving forward.

Recently, it reported $5 billion in sales, a year-over-year improvement of 4 percent from the same quarter a year earlier. And earnings per share (EPS) came in at $0.84 per share. That led to year-end estimates of $17.3 billion in earnings and operating profit of $2.2 billion.

With free cash flow of $1.5 billion, it has worked to pay down liabilities. That means more money in investors’ pockets.

Carrier Global Dividend A Boon For Investors

Carrier Global more than tripled in value since its IPO, and that means investors have already reaped many of the market rewards. Because it’s newly back on the market, it’s unclear if share prices can sustain their ascent.

The board chose to pay a steady dividend so far, which is great for investors who prioritize income. But it also drains money that could be reinvested more profitably in the company.

Because it has operated for over 40 years as a subsidiary, Carrier may not have the culture within to thrive as a standalone entity. Operating as a publicly traded company is relatively new and everyone’s getting their feet wet. It’s unclear what the firm’s growth strategy will be for the next 20 years.

This leaves some bearish investors cooled on the prospects of confidently generating returns on capital invested.

Carrier Global Is Elbowing In On Big Rivals

Carrier Global’s biggest competitors are Trane Technologies (TT), Lennox International (LII), and Rheem Manufacturing Company. Each trades for a premium compared to Carrier’s price to earnings.

Trane is a $35 billion company with a P/E ratio near 40x. Lennox International is a $10 billion plus company with a P/E ratio of around 30x. That makes Carrier Global the cheapest of the bunch on the earnings multiple metric, and it has a more diverse manufacturing capability.

The company also expanded into refrigeration equipment used in trucks and shipping containers, along with fire safety equipment. By continuing to expand into new products, Carrier remains competitive. But there’s no telling how long its luck will last.

Still, manufacturing is a tough business, especially when done at smaller scales domestically. That’s why Carrier was initially going to close its Indiana factory that caught President Trump’s attention.

It has plenty of debt on its books, adding up to over $12 billion. That’s a massive uptick from the $309 million it owed in 2019, even with $3.8 billion cash in hand.

That debt is the biggest problem weighing this company down. If it can manage that liability well, it will be a much more attractive investment prospect.

Is Carrier Global Stock A Buy? The Bottom Line

Carrier Global is the original air conditioning company, and it has expanded into climate control for a variety of residential and commercial uses. Over a century old, it has spent over 40 years as a subsidiary before being spun off in 2020 as its own independent public company.

Since then, it generated 3x share price growth and paid a healthy dividend, drawing investor attention by year end. The only question on investors’ minds is whether the company can continue its growth trajectory over the next decade. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.