Heating ventilation and air conditioning (HVAC) stock Carrier Global (NYSE:CARR) has been a big outperformer. Not only is the stock up 100% over the last year, but it's up 27% in 2021 alone. So is the stock's hot run already over, or is there more to run? Let's take a closer look at what to expect from the company created out of the breakup of United Technologies last year.

A couple using air conditioning while relaxing on a living room couch.

Image source: Getty Images.

Three reasons why Carrier can continue to outperform

Carrier remains one of the most attractive stocks in the industrial sector. The reasons why can be put into three highly interrelated buckets:

  1. End market trends remain favorable, and the long-term growth outlook -- driven by demographic and regulatory trends -- is very positive.
  2. The fact that Carrier is now an independent company has led to a host of management initiatives aimed at improving profitability.
  3. Carrier has an opportunity to boost revenue and earnings through the use of growing technologies, such as digitalization and the internet of things (IoT).

End-market trends

The favorable long-term, end-market trends have been discussed previously. The global trend toward urbanization remains in place while city temperatures are rising (partly due to urbanization). The emergence of the middle class in developing countries means that HVAC demand is only going to increase.

A cluster of tall commercial buildings.

Image source: Getty Images.

The long-term trends are favorable, and so are the near- to medium-term trends. For example, the stay-at-home economy significantly boosted demand for residential HVAC, and now that the economy is reopening, commercial HVAC demand is coming back too. The table below shows ongoing strength in residential HVAC orders, with commercial HVAC now positive and recovery in place in Carrier's other two segments -- refrigeration and fire, and security.

Carrier Orders Year-Over-Year Growth

Q1 2021

Q4 2020

Q3 2020

Q2 2020

Total HVAC





Residential and light commercial HVAC





Commercial HVAC










Fire and security










Data source: Carrier Global presentations.

The year-over-year rate of orders and sales growth is likely to slow in the second half due to difficult comparisons with 2020. Still, Carrier's management is expecting respectable organic sales growth of 5% to 8% for the full year 2021.

Beyond the near term, it's possible that the pandemic will encourage a greater awareness of the need for cleaner, healthier buildings, and the "V" in HVAC is the starting point of that. In addition, companies are coming under increasing regulatory pressure to reduce carbon emissions, and retrofitting HVAC is a key part of the battle.

Carrier Global as an independent company

The separation from United Technologies has allowed management to focus on improving productivity. For example, management has restructured some of its less favorable joint ventures and terminated an unfavorable vendor contract. In addition, management continues to review its portfolio of businesses and may well decide to off-load its fire and security business in order to focus on HVAC.

Rows of air conditioning units.

Image source: Getty Images.

At the heart of all of these changes is the "Carrier 700" program to cut $700 million in costs by 2023, with $250 million already in the bag in 2020, $225 million planned for 2021, and a further $225 million in 2022. The cost cuts will significantly boost margin earnings and free cash flow (FCF) to 2023.

As you can see below, the Wall Street analyst consensus is for strong growth in all three of these metrics in the next few years.

Carrier Global Wall Street Consensus


2021 Est

2022 Est

2023 Est

Operating profit

$2.2 billion

$2.66 billion

$2.99 billion

$3.19 billion

Operating margin





Free cash flow

$1.38 billion

$1.7 billion

$1.98 billion

$2.45 billion

Data source: marketscreener. com

Digitalization and IoT initiatives

Last but definitely not least, Carrier is actively seeking to grow its higher-margin aftermarket revenue. It can grow its aftermarket/service revenue by increasing "attachment rates." In other words, Carrier technicians will be servicing (under contract) the company's own HVAC units, instead of third-party technicians servicing Carrier equipment. One way management plans to improve its service is by using digital tools.  For example, technicians can use internet-enabled devices to diagnose problems with HVAC equipment and quickly order any replacement parts that are needed. In addition, Carrier can better analyze HVAC equipment's performance and detect problems earlier.

Is Carrier a good value?

Putting these three considerations together, it's clear that Carrier has excellent long-term growth prospects. If it continues to expand earnings and FCF in the manner that analysts expect, and trades on 17 times estimated FCF in 2023, then the stock remains a reasonably priced investment option.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.