Core Viewpoint - The article discusses the potential of various companies to join the ranks of the 'Magnificent 7' stocks, highlighting their strong growth prospects and market positions. Group 1: Berkshire Hathaway (BRK-A, BRK-B) - Berkshire Hathaway is suggested as a candidate for the 'Magnificent 7' due to its prudent diversification across sectors, which provides stability and flexibility in turbulent times [2][3] - The company is expected to outperform broader markets and is projected to reach a $1 trillion valuation [3] Group 2: MercadoLibre (MELI) - MercadoLibre is compared to Amazon and is recognized as a leading e-commerce player in Latin America, with a 32% gain over the past year and a 143% surge from its June low [4][5] - Analysts forecast its EPS to increase from $33 to $226 over the next decade, with revenue growth projected from $17.7 billion to $72.3 billion [5] Group 3: Li Auto (LI) - Li Auto is highlighted for its rapid growth in the Chinese EV market, with total deliveries reaching 684,780 vehicles, a 22% year-over-year increase [6] - The company anticipates a 90-96% increase in first quarter 2024 deliveries compared to the previous year, while trading at 18x forward earnings [6] Group 4: FTAI Aviation (FTAI) - FTAI Aviation has gained 293% over the past five years and 139% in the last 12 months, driven by a strong business model focused on CFM56 commercial jet engines [7][8] - Analysts predict FTAI's EPS will triple from 2024 to 2027, with revenues expected to grow from $1.3 billion to $2.3 billion [8] Group 5: Elastic (ESTC) - Elastic operates in data analytics and has seen its stock rise 91% over the past year, with projected EPS growth from $1.2 in 2024 to $13.3 in 2033 [9][10] - Revenue is expected to quadruple over the same period, indicating strong growth potential despite a high valuation of around 90 times forward earnings [10] Group 6: Aaon (AAON) - Aaon is noted for its customizable HVAC solutions and has experienced over 20% revenue growth year-over-year in Q4, exceeding analyst estimates [11][12] - The stock has risen 36% over the past 12 months, with a favorable growth outlook due to increasing temperatures [12] Group 7: DoubleVerify (DV) - DoubleVerify operates in digital media measurement and analytics, with a 34% stock gain over the past year, despite a recent sell-off [13][14] - Analysts forecast over 20% revenue growth and 30%+ EPS expansion in 2024, positioning the company to benefit from the rebound in online ad spending [14]

Core Insights - AAON, Inc. reported strong fourth-quarter 2023 results with earnings exceeding the Zacks Consensus Estimate and showing year-over-year growth [1] - The company achieved record net sales driven by improved productivity and operational efficiencies, reflected in a healthy backlog level [1][2] - Following the earnings announcement, AAON's shares increased by 1.4% in after-hours trading [1] Financial Performance - Quarterly earnings were reported at 56 cents per share, surpassing the Zacks Consensus Estimate of 53 cents by 5.7%, and up from 47 cents in the same quarter last year [2] - Net sales for the quarter reached $306.6 million, a 20.4% increase from $254.6 million year-over-year [2] - The backlog at the end of Q4 2023 was $510 million, down 6.9% year-over-year but up 4% sequentially due to increased bookings [2] Operating Metrics - Gross margin expanded by 560 basis points to 36.4% in Q4, while SG&A expenses as a percentage of sales increased by 310 basis points to 15.6% [3] - Operating margin improved by 250 basis points year-over-year to 20.8% [3] - Adjusted EBITDA rose by 37.1% to $77 million, with the adjusted EBITDA margin increasing by 300 basis points to 25.1% [3] Annual Overview - For the full year 2023, net sales grew by 31.5% to $1.17 billion compared to $888.8 million in 2022 [4] - Earnings per share for 2023 were $2.13, a 71.8% increase from $1.24 in 2022 [4] - The gross margin expanded by 740 basis points year-over-year to 34.1%, and the operating margin increased by 520 basis points to 19.5% [4] Cash Flow and Financial Position - As of December 31, 2023, cash and cash equivalents were $0.3 million, down from $5.5 million at the end of 2022 [5] - Net cash provided by operating activities for 2023 was $158.9 million, significantly up from $61.3 million in the prior year [5]

Group 1 - AAON, Inc. will participate in the Sidoti & Company Small Cap Virtual Conference on March 13, 2024, at 11:30 a.m. EDT [1] - The live webcast of the conference will be available on the AAON website, with an archive accessible after the event [1] - AAON is a leading producer of premium HVAC solutions, focusing on commercial and industrial indoor environments [2] Group 2 - Founded in 1988, AAON is headquartered in Tulsa, Oklahoma, and features a world-class innovation center and testing lab [2] - The company emphasizes designing and manufacturing highly configurable equipment to enhance efficiency, performance, and long-term value [2] - AAON aims to continuously push boundaries and advance the HVAC industry through its engineering efforts [2]

Financial Data and Key Metrics Changes - In 2023, net sales grew 31.5%, surpassing $1 billion for the first time in company history, with organic volume up 14.5% [6][7] - For Q4 2023, net sales increased by 20.4% to $306.6 million, with gross profit up 42.3% to $111.7 million, resulting in a gross profit margin of 36.4% [22][23] - Net income for the year grew over 75%, marking a second consecutive year of record earnings [6][7] - Diluted earnings per share for Q4 increased 19.1% to $0.56, the strongest fourth quarter in the company's history [24] Business Line Data and Key Metrics Changes - The BASX segment achieved record sales and profits, with net sales up 33.6% and gross profit up 70.3% in Q4 [7][22] - AAON Oklahoma's net sales increased by 23.4%, with gross profit up 45.3% [7][22] - AAON Coil Products experienced a decline in net sales by 17.9% [23] Market Data and Key Metrics Changes - Bookings in Q4 were the strongest since Q1 2022, leading to a quarter-over-quarter increase in backlog [7][28] - The data center market contributed over 10% of revenue in 2023, with more than 20% of new orders coming from this sector [36] Company Strategy and Development Direction - The company is focused on expanding its total addressable market through innovative manufacturing processes and responding to trends like decarbonization and electrification [9][18] - Significant capital investments are being made to increase production capacity, particularly in Longview, Texas, and Redmond, Oregon [13][14] - The company aims to enhance customer experience and service quality, alongside increasing marketing efforts to raise brand awareness [16][21] Management's Comments on Operating Environment and Future Outlook - Management anticipates 2024 will be a slower growth year compared to previous years, with expectations of mid-single-digit pricing contributions and low single-digit volume growth [30][31] - The non-residential construction market is showing signs of slowing, but the company remains optimistic about its position due to its readiness for the refrigerant transition [28][30] Other Important Information - The company plans to invest approximately $125 million in capital expenditures in 2024, focusing on projects that will support growth and productivity [25][31] - The parts business is expected to be one of the fastest-growing segments, with a growth rate of 26.3% in 2023 and plans to double its contribution to total sales in the next few years [20] Q&A Session Summary Question: Insights on the data center market and AI impact - The data center market is driving significant growth, with over 10% of revenue in 2023 coming from this sector, and strong demand is expected to continue [36][37] Question: Visibility on market conditions compared to last year - The market appears resilient despite macroeconomic indicators suggesting otherwise, with no major changes in the overall landscape noted in recent months [39][40] Question: Delivery timeline for new refrigerant equipment - Deliveries for new refrigerant equipment are expected to begin in Q2 2024, with substantial contributions anticipated in the latter half of the year [45][46] Question: Pricing strategy updates - The company has implemented price increases over the past months but currently has no immediate plans for further increases, maintaining gross margin targets [54][55] Question: Growth outlook for the Coil Products division - Growth from the Longview facility is expected to materialize more significantly in 2025, with 2024 showing moderate growth as investments are completed [63][64]

Financial Performance - Net sales for Q4 2023 increased 20.4% to a record $306.6 million, compared to $254.6 million in Q4 2022[2] - Gross profit for the quarter rose 42.3% to $111.7 million, representing a gross profit margin of 36.4%, up from 30.8% in the same period last year[3] - Earnings per diluted share in Q4 2023 increased 19.1% to $0.56, compared to $0.47 in Q4 2022[3] - Operating income for Q4 2023 increased 37.1% to $63.9 million, with an operating margin of 20.8%[4] - Net income for 2023 was $177,623 thousand, up from $100,376 thousand in 2022, representing a 77% increase[15] - Net income for December 2023 was $47,049 thousand, up from $38,898 thousand in December 2022, representing a growth of 21.7%[22] - EBITDA for 2023 was $224,091 thousand, up from $135,482 thousand in 2022, marking a 65% increase[19] - EBITDA for December 2023 reached $77,046 thousand, compared to $56,184 thousand in December 2022, reflecting an increase of 37.1%[22] - Adjusted net income for 2023 was $183,131 thousand, compared to $100,376 thousand in 2022, reflecting an increase of 83%[18] - Adjusted EBITDA for the year ended December 2023 was $281,215 thousand, significantly higher than $162,266 thousand for the previous year, marking a growth of 73.2%[22] Cash Flow and Assets - Cash flows from operating activities grew year-over-year by 189.0% in Q4 2023 and 159.1% for the full year, exceeding capital expenditures[6] - Current assets increased to $408,954 thousand in 2023 from $349,116 thousand in 2022, a growth of 17%[13] - Cash and cash equivalents at the end of the period rose to $9,023 thousand in 2023 from $5,949 thousand in 2022, an increase of 51%[15] - The company reported a net cash provided by operating activities of $158,895 thousand in 2023, compared to $61,318 thousand in 2022, a growth of 159%[15] Liabilities and Equity - Total liabilities decreased to $206,012 thousand in 2023 from $227,189 thousand in 2022, a reduction of 9%[13] - Total stockholders' equity increased to $735,224 thousand in 2023 from $560,714 thousand in 2022, a rise of 31%[13] Market Outlook and Strategy - The company anticipates sales and earnings growth in 2024, albeit at slower rates than in recent years, due to external market factors[6] - The company is focused on enhancing productivity and leveraging new refrigerant technology to gain market share[6] Inventory and Capital Expenditures - The company’s inventories increased to $213,532 thousand in 2023 from $198,939 thousand in 2022, a rise of 7%[13] - Capital expenditures for 2023 were $104,294 thousand, significantly higher than $54,024 thousand in 2022, indicating a 93% increase[15] Other Financial Metrics - Gross profit margin for the full year 2023 was 34.1%, up from 26.7% in 2022[4] - Depreciation and amortization expenses increased to $13,029 thousand in December 2023 from $9,482 thousand in December 2022, a rise of 37.0%[22] - Interest expense decreased slightly to $884 thousand in December 2023 from $933 thousand in December 2022, a decline of 5.3%[22] - Income tax expense rose to $16,084 thousand in December 2023, compared to $6,871 thousand in December 2022, an increase of 134.5%[22] - The company recorded a litigation settlement effect of $7,500 thousand for the year ended December 2023[22] - Profit sharing effect for the year ended December 2023 was $(750) thousand, indicating a negative impact on adjusted EBITDA[22] - The company continues to focus on enhancing its EBITDA performance through strategic initiatives and operational efficiencies[22] Backlog - Backlog at the end of Q4 2023 was $510.0 million, up 4.0% from $490.6 million at the end of Q3 2023, but down 6.9% from $548.0 million at the end of Q4 2022[5]

Sales and Market Performance - In 2023, foreign sales accounted for approximately $39.9 million, representing 3.4% of net sales, compared to $27.6 million (3.1%) in 2022 and $14.8 million (3.0%) in 2021[12] - Major customer Texas AirSystems accounted for approximately 13.8% of sales in 2023, with additional sales through affiliated groups contributing 2.3%[23] - The company has seen a shift in sales patterns, with sales becoming more constant throughout the year due to increased demand and backlog[33] Business Segments and Strategy - The company operates through three business segments: AAON Oklahoma, AAON Coil Products, and BASX, focusing on HVAC systems and solutions[9] - The company emphasizes a business strategy of mass semi-customization, leveraging flexible manufacturing systems to produce highly configurable HVAC equipment[11] - The integration of acquired businesses is a key strategy for realizing synergies and cost savings, contributing to overall financial performance[6] Product Performance and Innovation - The performance characteristics of products range in cooling capacity from 2 to 261 tons and heating capacity from 7,200 to 4,500,000 BTUs, with many products exceeding minimum efficiency standards[15] - The company’s products are engineered for performance and flexibility, with a focus on meeting evolving regulatory standards in the HVAC industry[29] - The company’s innovative ASHPs are capable of operating in ambient temperatures as low as zero degrees Fahrenheit, addressing the demand for building decarbonization[13] Research and Development - The company’s research and development efforts are focused on energy performance, durability, efficiency, and indoor air quality, ensuring compliance with various regulatory standards[12] - Research and development expenses were approximately $43.7 million in 2023, reflecting a commitment to product performance and innovation[29] - The company operates a unique research and development laboratory, the NAIC, which includes capabilities for testing large HVAC systems, enhancing its competitive edge in the industry[29] Sustainability and Environmental Responsibility - The company achieved Platinum level in the Sustainability Alliance Scor3card program in both 2023 and 2022, indicating high performance in sustainability metrics[36] - Approximately 36% of the company's energy portfolio is currently derived from renewable sources, with ongoing efforts to increase this percentage[36] - The company is committed to reducing greenhouse gas emissions and increasing the percentage of non-fossil fuel powered units produced[36] Employee and Operational Growth - The total number of employees increased to 3,856 as of February 20, 2024, up from 3,666 in 2023 and 2,881 in 2022[38] - The company offers competitive employee benefits, including a 401(k) plan with a 175% employer match and a profit-sharing bonus plan[38] - The company has a program to enhance service capabilities across its North America representative network, providing training and business plan assistance[20] Manufacturing and Supply Chain - The company has multiple suppliers for raw materials, ensuring adequate supply to meet manufacturing requirements for the foreseeable future[26] - The company’s controls division provides factory-developed control options that enhance the unique features of its HVAC products, ensuring compliance with safety and quality standards[15] Backlog and Order Fulfillment - The company's backlog as of February 1, 2024, was approximately $507.7 million, with lead times for fulfilling orders generally around 11 weeks[24] - The backlog as of February 1, 2024, was approximately $507.7 million, with lead times to fulfill orders generally around 11 weeks[24] Waste Management and Recycling - The company successfully diverted over 694 tons of waste from landfills in 2023 through partnerships with waste-to-energy facilities, compared to 668 tons in 2022 and 460 tons in 2021[36] - The company recycled over 13,678 tons of metal at its Tulsa and Longview facilities in 2023, compared to 14,928 tons in 2022 and 13,793 tons in 2021[36]

Core Viewpoint - AAON, Inc. is set to discuss its fourth quarter 2023 financial results in a conference call scheduled for February 28, 2024, at 5:15 p.m. EST, with results released after market close on the same day [1] Company Overview - AAON, founded in 1988, is a global leader in HVAC solutions for commercial and industrial indoor environments [2] - The company specializes in designing and manufacturing highly configurable and custom-made equipment, enhancing efficiency, performance, and long-term value for customers [2] - AAON is headquartered in Tulsa, Oklahoma, featuring a world-class innovation center and testing lab that supports continuous advancements in the HVAC industry [2]

Core Investment Insights - The article emphasizes the importance of selecting stocks that provide stable returns and regular income through dividends for retirement portfolios [1] - Companies with essential products, loyal customer bases, and strong balance sheets are identified as ideal candidates for long-term investment [1] PepsiCo (PEP) - PepsiCo is highlighted as a cornerstone stock for retirement portfolios, known for stable returns and a growing dividend stream [2][3] - The company reported nearly 7% year-over-year revenue growth and a 14% increase in profits, showcasing its resilience in turbulent market conditions [3] - PepsiCo has an impressive 87% gross margin and is recognized as a Dividend King with 52 consecutive years of dividend increases, currently yielding 3% [3][4] Caterpillar (CAT) - Caterpillar is recommended as a core long-term portfolio anchor due to its essential role in global infrastructure projects [5][6] - The company experienced a 12% year-over-year sales increase and a 37% jump in earnings per share, outperforming expectations [7] - Caterpillar has a strong dividend history with 29 consecutive years of increases, currently yielding 1.7% [7] FTAI Aviation (FTAI) - FTAI Aviation operates in the commercial aircraft engine leasing sector, providing a stable investment with growth potential [8][9] - The company has quadrupled its revenue over the last two years and its stock price has increased by over 260% since September 2022 [9] - FTAI currently offers a 2.2% dividend yield and is positioned well in the growing global travel market [10] McDonald's (MCD) - McDonald's is presented as a resilient investment, thriving during economic downturns and maintaining strong sales and profit growth [11][12] - The company reported a 14% year-over-year revenue increase and a 19% rise in earnings for Q3 2023 [11] - McDonald's has a robust share repurchase program and a 48-year history of dividend growth, currently yielding 2.3% [12] Itochu (ITOCF) - Itochu is noted for its diversified business model across various sectors, providing stability and resilience [13][14] - The company offers a secure 2.65% dividend yield, making it a solid choice for long-term investors [14] Airbus (EADSY) - Airbus is positioned to benefit from increasing demand for commercial air travel and is expected to grow revenue by 12% in 2023 [15][16] - The company has secured over $163 billion in new airplane orders, indicating a strong production pipeline [16] Aaon (AAON) - Aaon specializes in HVAC equipment, with a significant increase in demand due to climate change [17] - The company reported a 29% year-over-year sales increase and a 75% rise in profits, supported by a strong balance sheet [17][18]

Core Insights - The Zacks Building Products - Air Conditioner & Heating industry is well-positioned to benefit from the energy transition and pro-environmental trends, with growing demand for renewable solutions expected in 2024 and beyond [1][3] - Companies like Watsco, Comfort Systems USA, and AAON are capitalizing on maintenance and repair services, alongside effective cost management practices, despite inflationary pressures [1][4] - The industry has shown strong performance, outperforming the broader Zacks Construction sector and S&P 500 over the past year, with a 58.4% gain compared to 37.1% and 21.4% respectively [8] Industry Overview - The industry includes designers, manufacturers, and marketers of products for heating, ventilation, air conditioning, and refrigeration, covering a wide range of equipment and services [2] - Key products include rooftop units, chillers, air-handling units, and various HVAC components, serving residential, commercial, and industrial markets [2] Trends Impacting the Industry - U.S. administration's focus on reducing greenhouse gas emissions is driving demand for clean energy systems, benefiting companies involved in controlled-environment agriculture [3] - Continuous investments in technology and e-commerce are vital for enhancing customer experience and expanding market reach [4] - The industry is experiencing stable revenue from maintenance and repair services, which are less affected by fluctuations in the construction market [4] Challenges Faced - Rising raw material costs and supply chain issues have impacted profit margins, alongside increasing operating expenses [5] - The industry is subject to stringent regulations regarding energy efficiency and emissions, which pose additional challenges [5] Market Performance - The Zacks Building Products - Air Conditioner & Heating industry holds a Zacks Industry Rank of 36, indicating strong near-term prospects [6] - The industry's forward 12-month price-to-earnings ratio is currently at 29.5X, higher than the S&P 500's 19.8X and the sector's 16.4X [9] Notable Companies - **Watsco, Inc. (WSO)**: The largest distributor of HVAC equipment in North America, with a 45% stock gain over the past year and expected earnings growth of 7.8% in 2024 [12] - **Comfort Systems USA, Inc. (FIX)**: A national provider of HVAC services, with a 74.7% stock gain and projected earnings growth of 13.5% in 2024 [13] - **AAON, Inc. (AAON)**: Focused on air conditioning and heating equipment, with a 44% stock gain and expected earnings growth of 9.6% in 2024 [15]

Financial Data and Key Metrics Changes - Net sales increased by 28.6% to $312 million from $242.6 million, driven by improved operational efficiencies and pricing contributing 16.7% to growth [10][11] - Gross profit rose by 77% to $116.1 million, with gross profit margin improving to 37.2% from 27% in Q3 2022 [10][11] - Diluted earnings per share increased by 70.6% to $0.58, with non-GAAP adjusted EPS at $0.64, a year-over-year increase of approximately 90% [10][11] Business Line Data and Key Metrics Changes - The parts business saw a 14% growth, representing 5.8% of total sales, with expectations to double or triple in the next five years [8] - The AAON, Oklahoma, and BASX segments experienced robust growth, contributing to overall volume growth of 11.9% [10] Market Data and Key Metrics Changes - The market environment remains busy, with bookings and the book-to-bill ratio improving quarter-over-quarter, despite macroeconomic signals [7][14] - Industry trends favor AAON, with a focus on decarbonization, energy efficiency, and electrification driving demand for high-quality custom equipment [7] Company Strategy and Development Direction - AAON is aggressively investing in production capacity, sales and marketing, product development, and IT infrastructure to position for long-term growth [8][20] - The company anticipates continued market share gains due to new refrigerant regulations effective January 1, 2025, and expects to leverage its early readiness in this area [20][54] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2024, expecting another solid year of growth with a healthy backlog, particularly in strong markets like data centers and semiconductor manufacturing [17][19] - The company noted that while some macro indicators suggest a slowdown, many end markets remain strong, and independent sales representatives maintain a positive outlook [19] Other Important Information - The leadership team is undergoing changes, with Matt Tobolski becoming President and COO, focusing on day-to-day operations while Gary Fields narrows his focus to strategic objectives [22][23] - Capital expenditures for the year are expected to be approximately $100 million, reflecting a 99.3% increase from the previous year [13] Q&A Session Summary Question: Thoughts on pricing as AAON approaches 2024 - Management indicated that while gross margins are strong, they expect a new range for margins rather than a return to historical levels [29] Question: Status of Longview Coil Products business - Management acknowledged hurdles but expects continuous improvement throughout the next year as they align manufacturing processes [31][33] Question: Enhancements made that are yet to be financially recognized - Management highlighted productivity improvements and ongoing CapEx projects that have not yet fully realized their potential [35][37] Question: Competitive landscape between core rooftop and BASX - Management noted a narrowing price delta between AAON products and competitors, with BASX products maintaining a value-driven proposition [40][41] Question: Potential market share gains from refrigerant regulations - Management expressed confidence in gaining market share due to being ahead in readiness for new refrigerant regulations [46][60] Question: Factors contributing to elevated SG&A expenses - Management confirmed that elevated SG&A was due to profit sharing and investments in long-term growth, which are factored into Q4 guidance [55][56]