Player Avatar TMFPlatoish (97.40) Submitted: 12/19/2008 7:38:47 PM : Outperform Start Price: $8.41 FIX Score: +11.32

Comfort Systems is an excellent small company with great management and a superior operating model. Since it plays in the commercial construction industry, it has been sold off with the sector. However, I view this to be overdone. It has maintained a work backlog near record highs and continues to be very disciplined about what work it bids on. It definitely won't take jobs to boost revenue at the peril of profits. Free cash flow and operating profits are what it judges its individual businesses on and what it rewards its managers for in the form of performance-based bonuses.

It is actually a collection of some 45 operating businesses spread across the country. It is an HVAC (heating, ventilation, and air conditioning) contractor for the most part. Each company serves its local area. The company's sweet spot is mid-sized cities such as Little Rock, Madison, Syracuse, and Tacoma, but it does have operations in some larger cities like Dallas, Orlando, Houston, and Phoenix. It offloads most back office functions for its companies to corporate, so the companies' can focus on winning and executing jobs. Benefits, insurance, material purchasing, and many other functions are consolidated, allowing Comfort Systems to offer big company benefits to its employees and attract the best in the business.

The company is well diversified across industries. It has a strong presence in the schools, hospitals, and military/government building sectors. These should hold up strong and may get some impetus from the Obama infrastructure jobs program. They also play in the hotels and high rise apartment industries which are likely to slow.

The company has the ability to share manpower and specialized resources among its various businesses. A HVAC system for a hospital needs to meet very specific and strenuous requirements. It has hospital expertise at several of its companies which can be tapped when required. It also has a certified "green team" which is focused on meeting various green building standards which are emerging. Retrofit projects of existing buildings to reduce energy consumption and costs are becoming an increasingly important part of its business and are expected to continue to do so into the future.

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