Comfort Systems: Order acceleration offsets margin cuts as Goldman Sachs raises earnings forecasts

Revenue and profit both beat consensus. Why did the stock fall?

Comfort Systems reported third-quarter revenue of $3.766 billion, up 54% year over year, including approximately 46% organic growth; revenue exceeded consensus by 11%. EBITDA was $668 million, 6% above consensus but 2% below Goldman Sachs’ forecast.
The shortfall was in margins: EBITDA margin was 17.7%, up 0.8 percentage points year over year but down 0.7 percentage points sequentially, below consensus of 18.5% and Goldman Sachs’ forecast of 19.0%. It was the first sequential decline since the first quarter of 2025, and the stock fell 9% after earnings.

Goldman Sachs attributes the main reason to lower revenue recognition from upward revisions to project profit estimates: this revenue fell from 7.7% of revenue in the second quarter to 4.5%. Management says a higher share of projects is currently at an early stage, and margin revisions become clearer only when projects are approximately 40%–70% complete. Goldman Sachs estimates that underlying margins improved markedly sequentially excluding such adjustments.
The actual cost structure is also under pressure. The electrical business’s EBIT margin was 14.7%, down 2.2 and 1.2 percentage points year over year and sequentially, respectively. Large early-stage projects raised equipment and materials as a share of costs by about 2 percentage points above the first-half average; these items add revenue but contribute less profit. Acquisition accounting adjustments related to projects under construction also increased by approximately $12 million sequentially.
Expense dilution provided some cushion: selling and administrative expenses fell from 8.8% of revenue in the second quarter to 8.3%. Goldman Sachs says one reason is that expanding the modular business requires relatively little additional administrative expense.

Third-quarter new orders rose to $7.5 billion from $4.9 billion in the preceding quarter, while the book-to-bill ratio rose to 2 times from 1.5 times. Ending backlog was $17.81 billion, up 90% year over year and 27% sequentially; 65%–75% is expected to convert to revenue over the next 12 months, giving this support for growth a defined delivery window.
Management expects same-store growth of approximately 25% in 2027, above Goldman Sachs’ pre-earnings forecast of 16%. The company plans for modular capacity to exceed 4 million square feet by the end of 2026 and reach approximately 6 million square feet by the end of 2027; its previous target was approximately 5 million square feet by late summer 2027. All additional expansion is intended for existing long-term customers.
Longer-term demand remains constrained by the pace of data-center construction. Goldman Sachs cites Aterio data showing 83 GW of capacity under construction and another 455 GW announced but not yet started. Some of the latter projects are speculative and cannot all be counted as demand under construction.

Goldman Sachs takes a more conservative view of future upward revisions to project profits, cutting its 2026–2028 EBITDA margin forecasts from 18.8%, 19.2% and 19.7% to 18.1%, 18.4% and 18.6%, respectively, while still expecting sequential margin improvement.
Orders above expectations led Goldman Sachs to raise its revenue forecasts for both 2027 and 2028 by 12%, enough to offset the margin cuts. Its EBITDA forecasts for the two years rose by approximately 7% on average, to $3.274 billion and $3.799 billion, respectively.
Goldman Sachs maintained its Buy rating and raised its 12-month price target modestly from $1,875 to $1,895. While earnings forecasts increased, visibility into the margin trajectory declined, so the target valuation fell from 19 times to 17 times EV/EBITDA for the future 5–8 quarters; a slowdown in hyperscaler capital spending and project execution remain key constraints.