Persistently higher temperatures across Europe could create a significant long-term opportunity for U.S. heating, ventilation and air-conditioning (HVAC) manufacturers as demand for cooling systems continues to rise, according to analysts at Citi.
Europe is currently experiencing an intense heatwave, and the bank believes increasingly frequent periods of extreme heat could accelerate the adoption of air-conditioning systems in a region where penetration remains well below that of other developed markets.
Citi highlighted International Energy Agency figures from 2018 showing that only around 20% of European households were equipped with air conditioning, compared with approximately 90% of households in both the United States and Japan.
“Relatively low penetration of air conditioning in Europe coupled with seemingly more frequent and hotter heat waves” could support growing use of cooling systems in the region, Citi analysts wrote.
The bank believes several U.S.-listed HVAC manufacturers stand to benefit from this structural trend, including Carrier Global (NYSE:CARR), Trane Technologies (NYSE:TT) and Johnson Controls (NYSE:JCI).
Carrier was identified as the company with the greatest exposure to the opportunity, with more than one-fifth of its revenue generated by its Climate Solutions Europe division. Citi noted that Carrier is the market leader in Europe’s commercial HVAC sector and ranks second in residential and light-commercial HVAC.
The analysts also pointed to continued momentum in Carrier’s European heat-pump business, where first-quarter sales increased by a low-teens percentage. They added that applications for German heat-pump subsidies submitted before the current heatwave indicate that demand remains healthy.
Although Trane Technologies and Johnson Controls generate a smaller share of revenue from Europe, Citi believes both companies are well positioned to benefit as governments, businesses and households invest more heavily in cooling technology and energy-efficient climate solutions.