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The Manhattan skyline is shrouded in a smoky haze from Canadian wildfires as seen from the East River waterfront in Brooklyn, New York, June 6, 2023.
Ed Jones | Afp | Getty Images
Eight of the warmest years in history have all come since 2015.
With an El Niño weather pattern developing, it could be another hot one because the last time that phenomenon occurred — in 2016 — it was the hottest year on record.
What a warming world means is heating, ventilation and air-conditioning companies and other firms that provide climate technologies that make buildings more efficient have a multidecade opportunity for growth.
The data tells the story
Of the three billion people living in the hottest places on earth, including Africa and the Middle East, only about 8% have air conditioning. Further, not only are incomes expanding in many of these same areas, but their populations are growing faster than much of the rest of the world. Historically, a strong link has existed between HVAC demand and these two data points.
While the multiplier effect could be more modest in the developed world, including the U.S., demand will still rise as temperatures trend higher. Think about places such as Seattle. At one time, it was the least air-conditioned big city in the country, but recent heat waves in the Pacific Northwest have moved the needle there.
Ongoing decarbonization efforts are another consideration. A growing number of governments, corporations and individuals are searching for ways to reduce their footprints, whether it’s adding solar energy, battery storage or heat pumps, or retrofitting buildings in other ways to make them more efficient.
Add it all together and there will be ample HVAC-related market opportunities to play these trends.
Stocks for a warming world
Carrier Global Corporation is the North American residential and unitary commercial HVAC systems market leader. In April, it announced plans to divest its fire and security businesses and said it would acquire the HVAC and renewable energy business of the German industrial firm Viessmann Group. Those moves will help transform Carrier into a pure-play HVAC company with a large global footprint. Its shares currently trade under 19 times 2023 consensus earnings, a discount relative to industry peers, not to mention a broader set of industrial companies.
Johnson Controls International provides a range of fire, security and HVAC-related tech, software and other products to make buildings more energy-efficient and reduce costs. The company’s smart building platform, OpenBlue, is helping drive double-digit growth in its service business, while orders also benefit from ongoing decarbonization and healthy building trends.
Meanwhile, Hannon Armstrong Sustainable Infrastructure Capital doesn’t provide HVAC services or products but supplies capital to companies within this market that do. Its earnings per share have grown at a 14% compound growth rate over the last three years, while the company’s 12-month investment pipeline currently exceeds $5 billion. The stock now trades at 11 times consensus 2023 earnings.
The signs that the world is warming are inescapable. Look no further than the layers of thick smoke that have recently blanketed New York and other parts of the Northeast corridor.
Unfortunately, not much scientific evidence suggests that current trends will let up.
This has far-reaching implications, touching on everything from food production to clean drinking water and other serious health concerns. Beyond that, the conversation surrounding cooler and more efficient workspaces and homes will soon be less about luxury and more a matter of necessity, driving up demand for the products, services and equipment that will help to solve that challenge.
— Noah Kaye is managing director and senior analyst with Oppenheimer & Co. He covers sustainable growth and resource optimization.
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