Shares of Carrier Global (CARR) jumped 3.9 % during Friday's trading session. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's mixed growth prospects and mixed market sentiment.
Carrier Global Corporation provides heating, ventilating, and air conditioning (HVAC), refrigeration, fire, security, and building automation technologies worldwide. The large-cap Industrials company is based in Palm Beach Gardens, United States and has 52,000 full time employees.
CARR's P/E Ratio Is Comparable to its Sector Average
Compared to the Industrials sector's average of 20.49, Carrier Global has a trailing twelve month price to earnings (P/E) ratio of 19.9 and an expected P/E ratio of 21.0. P/E ratios are calculated by dividing the company's share price by either its trailing 12 month ($2.96) or forward earnings per share ($2.81).
Earnings is another term for the net profits left over after subtracting cost of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Carrier Global's P/E ratio is near its sector average of 20.49, we can deduce that the market is fairly valuing the company's earnings.
Carrier Global Is Overvalued in Terms of Expected Growth
Carrier Global's PEG ratio is 2.43. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Carrier Global's case, it tells us the company is overvalued.
CARR Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Carrier Global's P/B ratio of 6.34 is higher than its sector average of 3.78, such a margin of safety does not exist for the stock.
Investors Stand to Gain from CARR's Cash Flows
Carrier Global has strong cash flows. With a coefficient of variability of 13.9% and an average growth rate of 1.5%, the company is effectively turning its revenue into cash. We calculate Carrier Global's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations. The table below shows us that capital expenditures are evolving at a 4.2% rate, versus 1.0% for operating expenses:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-07 | 1,743,000 | -353,000 | 2,096,000 | -18.79 |
| 2022-02-08 | 2,237,000 | -344,000 | 2,581,000 | 28.79 |
| 2021-02-09 | 1,692,000 | -312,000 | 2,004,000 | n/a |
Carrier Global's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Carrier Global's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
Carrier Global's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-07 | 20,421,000 | -14,957,000 | 26.76 | -7.76 |
| 2022-02-08 | 20,613,000 | -14,633,000 | 29.01 | -0.89 |
| 2021-02-09 | 17,456,000 | -12,347,000 | 29.27 | n/a |
Carrier Global's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-07 | 20,421,000 | -3,051,000 | 11.82 | 3.41 |
| 2022-02-08 | 20,613,000 | -3,623,000 | 11.43 | 6.72 |
| 2021-02-09 | 17,456,000 | -3,239,000 | 10.71 | n/a |
Carrier Global's cost of revenue is growing at a rate of -6.6% in contrast to 2.0% for operating expenses. Sales revenues, on the other hand, have experienced a 5.4% growth rate. As a result, the average gross margins growth is -2.9 and the average operating margins growth rate is 3.3, with coefficients of variability of 4.9% and 5.0% respectively.
We See Mixed Market Signals Regarding CARR
Carrier Global has an average rating of buy and target prices ranging from $60.0 to $45.0. At its current price of $58.99, the company is trading 11.2% away from its target price of $53.05. 4.0% of the company's shares are linked to short positions, and 89.3% of the shares are owned by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-03-31 | Vanguard Group Inc | 11% | 94,572,596 | $5,578,837,596 |
| 2023-03-31 | Capital Research Global Investors | 9% | 77,075,769 | $4,546,699,742 |
| 2023-03-31 | Capital World Investors | 9% | 72,760,311 | $4,292,130,868 |
| 2023-03-31 | Blackrock Inc. | 7% | 58,542,844 | $3,453,442,465 |
| 2023-03-31 | Capital International Investors | 7% | 56,606,998 | $3,339,246,907 |
| 2023-03-31 | State Street Corporation | 4% | 33,147,448 | $1,955,368,013 |
| 2023-03-31 | Price (T.Rowe) Associates Inc | 2% | 17,482,866 | $1,031,314,294 |
| 2023-03-31 | Geode Capital Management, LLC | 2% | 17,377,066 | $1,025,073,152 |
| 2023-03-31 | Dodge & Cox Inc | 2% | 14,893,181 | $878,548,772 |
| 2023-03-31 | Nuveen Asset Management, LLC | 2% | 13,720,602 | $809,378,335 |
