AAON

The Air Conditioner Maker

"The whole stock market depends only on whether there are more stocks than idiots – or the other way around." I think this quote from the old master André Kostolany describes the current stock market pretty well. In the past week alone, Tesla stock, which was already way too expensive, rose by another 24.71 percent. No wonder Elon Musk has now also overtaken Jeff Bezos on the list of the richest people in the world. A little side note: A year ago, Musk only just made it into the top 50. Granted, I find the hardworking visionary Musk a lot more likeable than Bezos, but that doesn't change the fact that I find the current Tesla share price way too euphoric.

The fact is, Tesla is sexy, and very few investors want boring stocks like the ones I often present here. Well, that doesn't bother me. Let the party in the markets go on. The longer it lasts, the worse the hangover afterward! Today, let's take a look at AAON, a boring air conditioner manufacturer that has been very successful and extremely profitable for years.

The Origins and Business Model of AAON Inc.

The origins of today's AAON Inc. go back to John Steele Zink, who was born in Iowa in 1894. In 1907, he moved with his family to Oklahoma, more precisely to the city of Norman. As a young man, he completed his studies at the University of Oklahoma and shortly afterward began working for the Oklahoma Natural Gas Company. In his spare time, the inventive tinkerer developed a new type of gas burner and finally decided to found his own company in 1928 - the John Zink Company was born. He did research tirelessly, and further technical innovations promptly followed. Business went very well, and the company quickly made a name for itself in the industry. Little by little, it specialized in manufacturing burners, flares, and incinerators for the petroleum industry. When John visited a wealthy oil magnate who told him he was looking for a heating and air conditioning system for his mansion, John promptly decided to expand his business activities further. The John Zink Company developed wonderfully in this segment as well, and starting in 1968 it also began supplying commercial customers with rooftop air conditioners. In 1970, McDonald's became the company's first major customer. Wal-Mart and other major customers followed shortly afterward.

Before I get into how the John Zink Company became today's AAON Inc., we have to take another leap into the past. On December 10, 1935, Norman Harold Asbjornson was born in the small village of Winifred (Montana). His family was still heavily burdened by the Great Depression, which is why there was no running water in their home, let alone electricity or a telephone. Even as a little boy, Norm had to pitch in a lot and earned some pocket money by hauling water buckets on chicken farms. At just 10 years old, he bought himself a rusty, broken-down Ford Model T, which he repaired with a lot of patience and technical skill. He modified his car a bit and from then on emptied trash cans in his village for 25 cents each. After high school, he attended Montana State College and tried his hand at an engineering degree. However, he was hardly prepared and therefore had to take tutoring. When he ran out of money for that, Norm joined the Army and, a few years later, in 1960 to be exact, was able to complete his studies with a degree in mechanical engineering thanks to the G.I. Bill.

Shortly afterward, he received two job offers, one from Boeing Aircraft and another from American Standard. Even though he earned less money there, Norm chose American Standard Companies, because he sensed better opportunities for advancement. Over the next 12 years, he worked his way up the career ladder and became a sought-after expert on air conditioning systems. Meanwhile, Zink's son took over the management of the John Zink Company; he became aware of Norm and eventually offered him a job. For Norm, this initially meant a step back, but once again he recognized the potential and accepted the position. When the company was to be sold, Norm seized his chance and secured the air conditioning division. In 1988, he founded AAON Inc. (by the way, the company name isn't an abbreviation - they just wanted to be near the front of the phone book). Since then, AAON has developed into a highly profitable, globally active manufacturer of heating and air conditioning systems, which are usually installed on the roofs of residential buildings and industrial complexes.

What Does the Future Hold for AAON Inc.?

First, I'd like to take a look at the figures for the most recently published quarter (Q3 2020 - ended September 30). In this quarter, AAON generated revenue of 134.7 million US dollars, which not only means an increase of 18.7 percent over the prior-year quarter, but also represents a new quarterly record in the company's entire history. And that despite the fact that, due to the Covid-19 pandemic, some production facilities were still closed at the beginning of the quarter. Profit was also increased nicely - from 14.3 million US dollars to 20.5 million US dollars now. Broken down to earnings per share, this comes to 0.38 USD.

After more than 32 years as CEO, the now 85-year-old Norman H. Asbjornson handed over his post in May of last year to Gary D. Fields, who also has decades of experience in the air conditioning industry. Fields has been serving as President of AAON since November 2016. In honor of founding father Asbjornson, the company recently opened an innovation center where all kinds of projects can be researched. You can get a good impression of the "Norman Asbjornson Innovation Center" in this YouTube video here. I'm confident that AAON will continue to develop very well in the future. The market still offers quite a bit of potential, and AAON is excellently positioned, both financially and with the right people.

And What About the Dividend?

AAON has only been sharing its profits with its shareholders in the form of dividends since 2006. Since then, the dividend hasn't been raised every year, but at least it hasn't been cut in any year either. The dividend growth rate over the last 10 years is a strong 14.75 percent - with a figure like that, the low dividend yield of 0.6 percent is put into perspective. AAON currently pays out only 26.4 percent of its profit and reinvests the rest in its own development and growth. In my opinion, there is enormous long-term potential here, also when it comes to the dividend.

Conclusion:
AAON Inc. is a super healthy and solid company that should also deliver decent growth over the next few years. Granted, AAON stock is also close to its all-time high, but I would still probably prefer it to a Tesla. Especially since you usually buy good stocks at their all-time high.