Aaon AAON

NASDAQ AAON

$77.03 -2.37 (-2.98%)

As of: Sep 9, 2026 · 3:59 PM EDT

Key Stats

Market Cap6.55 Bn

P/E40.97

P/S3.39

Div. Yield0.50

Total Debt (Qtr)435.00 Mn

Revenue Growth (1y) (Qtr)101.23

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About

AAON, Inc. is a leader in heating, ventilation, air conditioning, and liquid cooling solutions for commercial and industrial indoor environments. The company designs and manufactures highly configurable equipment to meet specific customer requirements, delivering reliable performance, efficiency, and long-term value. Through a strong commitment to research and development, advanced engineering capabilities, and decades of industry experience, AAON continues to elevate…

AAON generates revenue through the engineering, manufacturing, and sale of HVAC systems, controls solutions, aftermarket parts, and specialized cooling systems. Primary products include rooftop units, air handling units, condensing units, makeup air units, energy recovery units, geothermal and water-source heat pumps, coils, factory controls, and BASX-branded thermal management solutions. The company serves commercial, industrial, data center, and cleanroom markets with a differentiated approach focused on mass semi-customization and technical excellence.

The company operates through the following segments: AAON Oklahoma, AAON Coil Products, and BASX.

AAON Oklahoma: This segment engineers, manufactures, and sells highly configurable HVAC systems, designs and manufactures controls solutions, and sells aftermarket parts through retail part stores and online. Operations include manufacturing facilities in Tulsa, Oklahoma; Memphis, Tennessee; and Parkville, Missouri, along with the Norman Asbjornson Innovation Center and the Gary D. Fields Customer Exploration Center. The AAON Alpha Class™ Technology, which enables air-source heat pumps to operate in ambient temperatures as low as negative twenty degrees Fahrenheit, is a key trademarked innovation developed within this segment.
AAON Coil Products: This segment engineers, manufactures, and sells semi-custom and custom HVAC systems as well as heating and cooling coils for use in HVAC systems, primarily supporting AAON Oklahoma, AAON Coil Products, and BASX. The Longview, Texas manufacturing facility produces both standard coils and BASX-branded products. Trademarked product lines associated with this segment include the RQ, RN, and RZ Series rooftop units, which are integral to the company's commercial and industrial offerings.
BASX: This segment engineers, manufactures, and sells a wide range of custom, high-performance cooling solutions for the hyperscale data center market, ventilation solutions for cleanroom environments in biopharmaceutical, semiconductor, medical, and agricultural sectors, and highly customized air handlers and modular solutions for various markets. BASX operates from Redmond, Oregon, with support from facilities in Memphis, Tennessee, and Longview, Texas. Key trademarked innovations include the Coolant Distribution Unit (CDU) and the water-free Free Cooling Chiller platform, both introduced in 2025 to support high-density AI and HPC deployments and sustainability objectives.

AAON holds a strong position in the HVAC industry by competing on total value proposition rather than initial price, emphasizing product quality, performance, efficiency, serviceability, reliability, and lifecycle cost of ownership. The company's comfort cooling products primarily compete with Lennox, Trane, York Light Commercial, Johnson Controls, Carrier, and Daikin, while its thermal management products compete with Vertiv, STULZ, Munters, Silent Aire, Nortek, and Modine. AAON differentiates itself through its NAIC research and development laboratory, which enables testing beyond standard AHRI rating points and supports leadership in quiet, energy-efficient commercial and industrial equipment.

AAON serves commercial, industrial, data center, and cleanroom markets, with key customers including Microsoft, Amazon Web Services, Google Cloud, QTS, and Applied Digital in the data center cooling space. The commercial air conditioning market includes customers such as independent sales representatives like Texas AirSystems and related portfolio groups including Meriton, Ambient, and Air Control Concepts. The company's customer base is supported by an extensive network of independent representatives, which helps mitigate concentration risk despite having multiple customers accounting for 10% or more of revenue in recent years.

Investment Thesis

▲ Bull case

AAON's record $2.1 billion backlog, more than double the prior year and marking a sixth consecutive record quarter, provides exceptional quarter revenue runway for sustained growth beyond 2026, as the company's capacity investments in Memphis and Longview are positioned to unlock headroom above $2 billion in annual revenue potential, with management noting that initial investments already embed more upside than the original $1.5 billion capacity estimate, suggesting that the current guidance of 40%-45% sales growth for FY26 may be conservative given the strength of data center demand and the company's ability to capture share in both branded segments while internal utilization improves and outsourcing reliance declines, setting the stage for margin expansion as fixed costs are absorbed and productivity gains materialize from the ramped facilities.
The Basics segment's 104.5% year-over-year sales growth to $135.4 million, driven by sustained data center cooling demand and new market share capture, is underpinned by a book-to-bill ratio over 2 and a 160% year-over-year increase in Basics-branded backlog, which management explicitly tied to outperformance against a 30% market growth rate in data center thermal management, indicating that the company is not only benefiting from secular tailwinds but actively gaining share through differentiated liquid cooling solutions and CDUs, with the CEO noting that the full-year outlook implies roughly $1 billion in Basics revenue for 2026, a figure that reflects confidence in the durability of the data center opportunity and the scalability of the Basics business model as Memphis facility utilization improves and sequential investments in capacity continue to support higher throughput without requiring proportional increases in near-term CapEx.
Despite gross margin pressure of 170 basis points year-over-year to 25.1%, AAON's operating leverage is strengthening, as evidenced by SG&A as a percentage of sales declining 220 basis points to 13.7% and operating cash flow turning positive to $34 million from a $9.2 million usage in the prior year period, with the new CFO, Chung Cheung, prioritizing margin discipline and cash generation, and management confirming that pricing actions and reduced outsourcing are embedded in the backlog, meaning that as internal capacity scales and utilization improves—particularly in the Oklahoma and Longview segments—margin improvement is expected to follow sequentially through 2026, with the full-year gross margin guidance of 27%-28% representing a deliberate, temporary compression to accelerate market share gains, not a structural deterioration, and the company's ability to deliver 37% earnings per share growth despite margin headwinds underscores the quality of its incremental contribution and the effectiveness of its growth-at-a-reasonable-cost strategy.

AAON's record $2.1 billion backlog, more than double the prior year and marking a sixth consecutive record quarter, provides exceptional quarter revenue runway for sustained growth beyond 2026, as the company's capacity investments in Memphis and Longview are positioned to unlock headroom above $2 billion in annual revenue potential, with management noting that initial investments already embed more upside than the original $1.5 billion capacity estimate, suggesting that the current guidance of 40%-45% sales growth for FY26 may be conservative given the strength of data center demand and the company's ability to capture share in both branded segments while internal utilization improves and outsourcing reliance declines, setting the stage for margin expansion as fixed costs are absorbed and productivity gains materialize from the ramped facilities.
The Basics segment's 104.5% year-over-year sales growth to $135.4 million, driven by sustained data center cooling demand and new market share capture, is underpinned by a book-to-bill ratio over 2 and a 160% year-over-year increase in Basics-branded backlog, which management explicitly tied to outperformance against a 30% market growth rate in data center thermal management, indicating that the company is not only benefiting from secular tailwinds but actively gaining share through differentiated liquid cooling solutions and CDUs, with the CEO noting that the full-year outlook implies roughly $1 billion in Basics revenue for 2026, a figure that reflects confidence in the durability of the data center opportunity and the scalability of the Basics business model as Memphis facility utilization improves and sequential investments in capacity continue to support higher throughput without requiring proportional increases in near-term CapEx.
Despite gross margin pressure of 170 basis points year-over-year to 25.1%, AAON's operating leverage is strengthening, as evidenced by SG&A as a percentage of sales declining 220 basis points to 13.7% and operating cash flow turning positive to $34 million from a $9.2 million usage in the prior year period, with the new CFO, Chung Cheung, prioritizing margin discipline and cash generation, and management confirming that pricing actions and reduced outsourcing are embedded in the backlog, meaning that as internal capacity scales and utilization improves—particularly in the Oklahoma and Longview segments—margin improvement is expected to follow sequentially through 2026, with the full-year gross margin guidance of 27%-28% representing a deliberate, temporary compression to accelerate market share gains, not a structural deterioration, and the company's ability to deliver 37% earnings per share growth despite margin headwinds underscores the quality of its incremental contribution and the effectiveness of its growth-at-a-reasonable-cost strategy.

▼ Bear case

AAON's gross margin decline of 170 basis points year-over-year to 25.1%, driven by temporary outsourcing, Memphis ramp costs, tariffs, and general inflation, may persist longer than management anticipates due to ongoing supply chain constraints and the company's reliance on outsourcing to absorb fixed costs at the new Memphis facility, with the CFO acknowledging that margin improvement depends on internal capacity utilization rising, yet the Oklahoma segment's margin remains at 26.3%—well below historical highs in the upper 30% range—even after excluding Memphis overhead, indicating that structural pressures from tariff-related costs and inflation are not fully transitory and could erode long-term profitability if input costs remain elevated or if the company fails to fully internalize production as planned, especially given that the Basics segment's gross margin was flat year-over-year at 23.9% despite 104.5% sales growth, suggesting that scale alone is not driving margin expansion in the high-growth data center business and that mix shifts toward lower-margin Basics products may be offsetting gains elsewhere.
The company's capital expenditure intensity remains high, with $52.9 million in Q1 CapEx and a full-year expectation of $119 million focused on Memphis facility expansion, yet operating cash flow of $34 million only covers 64% of this investment, creating a reliance on external financing to fund growth, and while the leverage ratio improved to 1.71x from 1.77x, the absolute debt level of $425.2 million represents a significant increase from prior periods, raising concerns about financial flexibility if revenue growth slows or if interest rates remain elevated, particularly as the company's depreciation and amortization guidance of $95-$100 million implies that a large portion of earnings is being reinvested into maintenance CapEx rather than being available for debt reduction or shareholder returns, and the minimal cash balance of $1.1 million at quarter end leaves little buffer for operational surprises or working capital strain during the ramp-up phase.
Despite strong bookings and backlog growth, AAON's AAON-branded sales growth of 42% year-over-year and 11% sequentially was driven primarily by strength in the traditional transactional business and alpha-class electric heat pump orders, while national account bookings remained flat year-over-year, signaling potential weakness in the company's core commercial HVAC franchise outside of data centers, and the CEO's acknowledgment that the rooftop market is seeing only a low single-digit recovery in volumes suggests that the company's share gains in the transactional market may be cyclical and not structural, with the Basics segment's explosive growth increasingly dependent on a single end-market—data centers—making the company vulnerable to a slowdown in AI-driven infrastructure spending or a shift in cooling technology preferences, and the fact that AAON-branded backlog declined 3% sequentially, even as production improved, raises questions about the sustainability of demand for the company's legacy branded products in a softer unitary HVAC market where volumes are growing only modestly year-over-year.

AAON's gross margin decline of 170 basis points year-over-year to 25.1%, driven by temporary outsourcing, Memphis ramp costs, tariffs, and general inflation, may persist longer than management anticipates due to ongoing supply chain constraints and the company's reliance on outsourcing to absorb fixed costs at the new Memphis facility, with the CFO acknowledging that margin improvement depends on internal capacity utilization rising, yet the Oklahoma segment's margin remains at 26.3%—well below historical highs in the upper 30% range—even after excluding Memphis overhead, indicating that structural pressures from tariff-related costs and inflation are not fully transitory and could erode long-term profitability if input costs remain elevated or if the company fails to fully internalize production as planned, especially given that the Basics segment's gross margin was flat year-over-year at 23.9% despite 104.5% sales growth, suggesting that scale alone is not driving margin expansion in the high-growth data center business and that mix shifts toward lower-margin Basics products may be offsetting gains elsewhere.
The company's capital expenditure intensity remains high, with $52.9 million in Q1 CapEx and a full-year expectation of $119 million focused on Memphis facility expansion, yet operating cash flow of $34 million only covers 64% of this investment, creating a reliance on external financing to fund growth, and while the leverage ratio improved to 1.71x from 1.77x, the absolute debt level of $425.2 million represents a significant increase from prior periods, raising concerns about financial flexibility if revenue growth slows or if interest rates remain elevated, particularly as the company's depreciation and amortization guidance of $95-$100 million implies that a large portion of earnings is being reinvested into maintenance CapEx rather than being available for debt reduction or shareholder returns, and the minimal cash balance of $1.1 million at quarter end leaves little buffer for operational surprises or working capital strain during the ramp-up phase.
Despite strong bookings and backlog growth, AAON's AAON-branded sales growth of 42% year-over-year and 11% sequentially was driven primarily by strength in the traditional transactional business and alpha-class electric heat pump orders, while national account bookings remained flat year-over-year, signaling potential weakness in the company's core commercial HVAC franchise outside of data centers, and the CEO's acknowledgment that the rooftop market is seeing only a low single-digit recovery in volumes suggests that the company's share gains in the transactional market may be cyclical and not structural, with the Basics segment's explosive growth increasingly dependent on a single end-market—data centers—making the company vulnerable to a slowdown in AI-driven infrastructure spending or a shift in cooling technology preferences, and the fact that AAON-branded backlog declined 3% sequentially, even as production improved, raises questions about the sustainability of demand for the company's legacy branded products in a softer unitary HVAC market where volumes are growing only modestly year-over-year.

Statement Business Segments Breakdown of Revenue (2025)

Peer group

Peer Comparison

Companies in the HVAC

S.No.	Ticker	Company	match	Market Cap	P/E	P/S	Total Debt (Qtr)
1	TT	Trane Technologies plc	primary	98.54 Bn	48.11	4.44	4.62 Bn
2	JCI	Johnson Controls International plc	primary	87.78 Bn	24.13	3.51	10.03 Bn
3	FIX	Comfort Systems Usa Inc	primary	56.67 Bn	165.00	14.32	0.05 Bn
4	CARR	CARRIER GLOBAL Corp	primary	49.23 Bn	42.09	2.23	11.95 Bn
5	LII	Lennox International Inc	primary	13.50 Bn	17.18	2.55	1.58 Bn
6	MOD	Modine Manufacturing Co	primary	10.26 Bn	-	-	0.44 Bn
7	SPXC	SPX Technologies, Inc.	primary	9.84 Bn	35.47	3.97	0.68 Bn
8	AOS	Smith A O Corp	primary	8.22 Bn	16.58	2.16	0.64 Bn

Aaon AAON

About

Investment Thesis

Segments Breakdown of Revenue (2025)

Statement Business Segments Breakdown of Revenue (2025)

Peer Comparison

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