DA Davidson cuts AAON stock price target to $125, maintains buy

On Friday, DA Davidson adjusted its outlook on AAON Inc (NASDAQ:AAON), a manufacturer of air conditioning and heating equipment, reducing the price target to $125 from the previous $150 while continuing to endorse the stock with a Buy rating. The stock has experienced significant pressure, falling 24% in the past week. According to InvestingPro data, AAON is currently trading near Fair Value levels. The firm’s analyst Brent Thielman provided insights into the revision, attributing the change to a realignment of the 2025 expectations based on the company’s initial guidance. The new estimates reflect a 13% decrease in EBITDA predictions, taking into account factors such as the expected flow of production and associated ramp-up costs.

Thielman noted that industry peer multiples, including AAON’s, have experienced consolidation, influenced by various factors such as economic conditions, tariffs, and the data center market. Despite the lowered price target, which now represents a 25x multiple of the projected 2026 EBITDA, the analyst sees potential for AAON’s stock to rebound.

The commentary from DA Davidson highlighted the near-term importance of AAON’s execution within its data center business and the growing evidence of order acquisition and market share gains, particularly in the rooftop segment. These factors are considered crucial in supporting a recovery in the company’s stock price and valuation multiple. Thielman expressed confidence in AAON’s medium to long-term growth potential, suggesting that successful execution and order fulfillment could reinforce investor confidence in the company’s trajectory.

In other recent news, AAON, Inc. reported fourth-quarter earnings and revenue that significantly missed analyst estimates. The company announced adjusted earnings per share of $0.30, falling short of the expected $0.53. Revenue also came in below expectations at $297.72 million compared to the anticipated $331.02 million, marking a 2.9% decrease year-over-year. CEO Gary Fields highlighted challenges such as an industry-regulated refrigerant transition and weakening nonresidential construction activity as factors affecting performance. The AAON Oklahoma segment experienced a 16.1% year-over-year decline in sales, contributing to the overall revenue drop. Gross profit decreased by 30.5% to $77.6 million, with the gross margin shrinking to 26.1% from 36.4% the previous year. Despite these setbacks, AAON’s total backlog increased by 70% at the end of 2024, driven by strong demand for data center cooling solutions from its BASX brand. Looking ahead, the company anticipates improved margins as volume growth is expected to accelerate throughout 2025. Additionally, the board has approved a new $100 million share repurchase program, though the primary focus remains on organic growth investments.

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