Is Comfort Systems Positioned to Sustain Margin Growth Above 24%?

Comfort Systems USA (FIX) has made impressive strides in profitability expansion through 2025, with its gross margin climbing substantially higher than prior-year levels. The company posted a 23.6% gross margin for the first three quarters of 2025, representing a 340 basis point year-over-year uplift, with the third quarter alone delivering 370 basis point growth. This sustained performance reflects a combination of favorable project selection, disciplined operational execution and robust client demand across key verticals.

The Backlog Story Behind Margin Expansion

The foundation of FIX’s margin resilience lies in its expanding project pipeline. As of Q3 2025, the company’s backlog reached $9.38 billion, a 65% year-over-year increase from $5.68 billion, with sequential growth of 15.5%. This substantial pipeline provides multi-quarter visibility and reveals a critical shift in project composition: technology and advanced manufacturing work now represents the dominant portion of remaining work.

Technology sector revenue accounted for approximately 42% of year-to-date sales in 2025, up significantly from 32% a year prior. These projects—primarily hyperscale data center infrastructure and AI-driven builds—tend to be larger in scope, technically demanding and less price-sensitive than traditional HVAC installations. Such characteristics give FIX pricing power and permit selective bidding, creating conditions favorable for gross margin preservation.

Execution Discipline Driving Profitability

Beyond project mix, management has consistently prioritized disciplined bidding practices, explicitly rejecting lower-margin opportunities that don’t meet return thresholds. This disciplined approach to deal selection directly translates to improved gross margin per revenue dollar. Coupled with FIX’s decentralized operating model and experienced regional teams, the company has managed labor deployment efficiently despite industry-wide construction workforce constraints.

The combination of disciplined bidding, superior labor deployment and exposure to higher-value project types creates conditions for gross margin to remain structurally above historical pre-2024 levels. While maintaining margins persistently above 24% may prove challenging, the durability of FIX’s margin gains suggests cyclical versus structural forces are primarily at work.

Competitive Positioning in a Crowded Market

Comfort Systems competes against formidable rivals including Carrier Global Corp. (CARR) and AECOM (ACM), each with distinct market strategies. Carrier Global has pursued portfolio reshaping through acquisitions and divestitures, building climate control and energy efficiency capabilities. AECOM, conversely, leverages its global engineering platform and heavy-civil capabilities for massive, technically complex infrastructure builds requiring comprehensive design-build delivery.

FIX’s competitive edge differs materially: the firm pairs M&A expansion with deep HVAC and electrical execution prowess, enabling it to capture bundled, time-sensitive projects faster than broader engineering consultancies. This focused approach allows FIX to compete effectively without directly matching AECOM’s engineering breadth or Carrier’s diversified product portfolio.

Stock Performance and Valuation Metrics

FIX shares have surged 81.5% over the past six months, meaningfully exceeding performance from its industry peers, the broader construction sector and the S&P 500. The stock currently trades at a premium valuation relative to industry comparables, with a forward 12-month P/E ratio of 30.93.

Earnings estimates for both 2025 and 2026 have remained stable at $26.31 and $30.61 per share respectively over the preceding 60 days. However, the underlying implied growth rates tell an important story: 2025 earnings are projected to expand 80.2% year-over-year, with 2026 delivering 16.4% growth. This deceleration in growth suggests investors should carefully weigh valuation relative to near-term earnings momentum.

The Margin Sustainability Question

The critical question for investors is whether current gross margin levels—particularly those exceeding 24%—can be sustained. Several factors support margin durability: the structural shift toward higher-value technology projects, disciplined project selection and operational leverage from FIX’s lean organizational model. However, as technology and data center cycles mature and competition intensifies, pricing discipline may face pressure.

Comfort Systems enters 2026 with strong backlog visibility, proven cash generation capability and project exposure skewed toward higher-margin sectors. While permanently holding gross margin above 24% presents challenges, the company’s strategic positioning and operational execution suggest margins will remain materially elevated compared with historic averages.

Comfort Systems currently carries a Zacks Rank #3 (Hold) rating.