With a daily gain of 2.82% and an Earnings Per Share (EPS) of 2.96, Carrier Global Corp (CARR, Financial) presents an interesting case for value investors. The question arises: is the stock modestly overvalued? This article aims to answer this question through a thorough analysis of the company's GF Value. We invite you to delve into this comprehensive evaluation.
Introduction to Carrier Global Corp (CARR, Financial)
Carrier Global manufactures heating, ventilation, and air conditioning (HVAC), refrigeration, and fire and security products. It serves both residential and commercial markets, with the HVAC segment sales mix being 60% commercial and 40% residential. The firm announced plans to divest its fire and security and commercial refrigeration businesses in April 2023, while also revealing a pending acquisition of Germany-based Viessmann for approximately $13 billion. Comparing the stock price of $58.35 per share with the GF Value of $47.9, it appears that Carrier Global (CARR) may be modestly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price significantly exceeds the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Carrier Global Corp (CARR, Financial) appears to be modestly overvalued based on the GF Value calculation. The company's current market cap stands at $48.7 billion, which, along with its stock price of $58.35 per share, indicates a potential overvaluation. Therefore, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength of Carrier Global
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Carrier Global has a cash-to-debt ratio of 0.36, ranking worse than 64.73% of companies in the Construction industry. Based on this, GuruFocus ranks Carrier Global's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Carrier Global
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. Carrier Global, with high profitability, has been profitable for 6 out of the past 10 years. Over the past twelve months, the company had revenue of $21 billion and an EPS of $2.96. Its operating margin is 11.24%, which ranks better than 79.25% of companies in the Construction industry. Overall, the profitability of Carrier Global is ranked 6 out of 10, indicating fair profitability.
Growth is a key factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Carrier Global is 3.3%, which ranks better than 50.1% of companies in the Construction industry. The 3-year average EBITDA growth rate is 24.5%, which ranks better than 80.32% of companies in the Construction industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Carrier Global's ROIC is 11.76, and its cost of capital is 10.26.
Conclusion
In conclusion, the stock of Carrier Global (CARR, Financial) appears to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 80.32% of companies in the Construction industry. To learn more about Carrier Global stock, you can check out its 30-Year Financials here.
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