Last Update 14 Dec 25

AAON: Data Center Expansion Will Drive Long Term Margin Strength Despite Short Seller Pressure

Analysts have modestly raised their price target on AAON to $112 from $105, reflecting growing confidence in the company’s differentiated HVAC and data center positioning, as well as the operating leverage expected from its expanding data center footprint and longer term growth initiatives.

Analyst Commentary

Bullish analysts highlight that the recent target increase mainly reflects rising conviction in AAON’s structural growth drivers, particularly its exposure to data center thermal management and differentiated HVAC solutions. They see the stock as a beneficiary of secular demand tied to artificial intelligence infrastructure, which is helping offset softer trends in residential and traditional construction markets.

Bullish Takeaways

Bullish analysts point to AAON’s positioning in data center thermal management as a key upside driver for revenue growth and a primary justification for the higher valuation range.
The company’s track record in flexible, solutions based manufacturing and advanced R&D is viewed as supporting premium pricing and share gains, underpinning confidence in margin expansion through FY27.
Analysts expect operational efficiencies and the lapping of prior non residential market weakness to improve execution visibility, supporting a smoother earnings trajectory and multiple stability.
The planned doubling of AAON’s data center footprint and execution on transformational initiatives from FY25 to FY27 are seen as catalysts for meaningful operating leverage and positioning the company in the upper tier of HVAC, Power and Industrial Efficiency peers on margin profile.

Bearish Takeaways

Bearish analysts remain cautious that end markets tied to residential and broader construction could stay sluggish, which may cap near term growth and limit upside to current earnings expectations.
The valuation following the price target increase is seen by some as embedding a high degree of success on the data center expansion plan, leaving less room for execution missteps.
There is concern that a slowdown or delay in artificial intelligence infrastructure spending could reduce order visibility for AAON’s data center solutions and pressure the growth premium currently afforded to the shares.
Some analysts flag the risk that integration and scaling challenges around new facilities and initiatives could weigh on margins in the interim, creating volatility around quarterly results even if the long term story remains intact.

What's in the News

Jehoshaphat Research disclosed a short position in AAON, arguing that data center cooling projects carry lower gross margins than the corporate average and warning of more than 30% downside to earnings versus consensus, as well as the potential for an accounting restatement to reduce inflated revenues (Periodicals).
AAON raised its full year 2025 guidance, now projecting mid teens year over year sales growth compared with prior expectations for low teens growth, reflecting stronger demand and pricing momentum (Key Developments).
The company issued new guidance for the fourth quarter of 2025, expecting double digit revenue growth supported by continued production recovery and earlier pricing actions (Key Developments).
AAON reported continued execution of its long running share repurchase program, having bought back over 11 million shares in total for approximately $832.65 million since the authorization began in 2010 (Key Developments).
AAON highlighted that its engineered cold climate heat pump rooftop units meet the U.S. Department of Energy's Commercial Building HVAC Technology Challenge criteria and have already been in production and installed in the field since February (Key Developments).

Valuation Changes

Fair Value: Unchanged at $115.25, indicating no adjustment to the intrinsic value estimate.
Discount Rate: Increased slightly from 8.39% to 8.45%, reflecting a modest rise in the assumed risk or cost of capital.
Revenue Growth: Effectively unchanged at approximately 16.6%, suggesting stable expectations for top line expansion.
Net Profit Margin: Stable at roughly 14.9%, with no meaningful change to long term profitability assumptions.
Future P/E: Increased slightly from 38.35x to 38.42x, implying a marginally higher valuation multiple on forward earnings.

Strategic investments and operational improvements are expected to drive production efficiency, margin recovery, and long-term operating leverage as capacity expands.
Strong demand in data centers and energy-efficient HVAC products boosts competitive positioning, enabling pricing power and supporting sustained revenue and margin growth.
Operational inefficiencies from system rollouts, high capital spending, market cyclicality, and cost pressures threaten margin expansion and earnings growth amid uncertain demand.

Catalysts

About AAON

Engages in engineering, manufacturing, marketing, and selling air conditioning and heating equipment in the United States and Canada.What are the underlying business or industry changes driving this perspective?

The company is overcoming short-term operational disruptions related to its ERP rollout, with visible progress in production efficiency and a strong, favorably priced backlog-supporting expectations for accelerating top-line growth and margin recovery in the second half of 2025 and into 2026. (Impacts revenue and gross margins)
Rapid growth in the data center market, driven by demand for advanced cooling solutions (liquid cooling, custom chillers), is fueling significant BasX brand order wins and partnerships (such as Applied Digital), positioning AAON to capitalize on long-term technology and infrastructure spending. (Impacts revenue and earnings)
AAON's product mix is increasingly aligned with customer priorities for high-efficiency HVAC, heat pumps, and indoor air quality, as evidenced by surging bookings for Alpha Class heat pumps and national account wins-reflecting strong competitive differentiation and pricing power in response to regulatory and environmental trends. (Impacts revenue and net margins)
Ongoing investments in new manufacturing capacity and automation (e.g., the Memphis facility) are expected to nearly double BasX capacity by year-end, removing current operational constraints and shifting from near-term cost drag to profit contribution by 2026 as orders ramp, supporting long-term operating leverage. (Impacts margins and earnings)
Customers' focus on energy efficiency, decarbonization, and technology integration is expected to support sustained long-term demand for AAON's premium HVAC offerings and controls, while the company's ability to pass through price increases and surcharges is now reflected in its backlog, positioning for higher future margins. (Impacts gross margins and earnings)

AAON Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming AAON's revenue will grow by 15.3% annually over the next 3 years.
Analysts assume that profit margins will increase from 9.7% today to 14.7% in 3 years time.
Analysts expect earnings to reach $283.0 million (and earnings per share of $3.35) by about September 2028, up from $122.1 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.1x on those 2028 earnings, down from 52.2x today. This future PE is greater than the current PE for the US Building industry at 23.0x.
Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.16%, as per the Simply Wall St company report.

AAON Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Prolonged and disruptive ERP implementation across multiple sites has significantly reduced production efficiency and caused material gross margin compression; ongoing system rollouts through 2026 present continued risk of operational setbacks, which could negatively impact both near-term and long-term earnings and margin expansion targets.
Substantial capital expenditures and working capital needs-especially related to scaling BasX manufacturing and standing up the Memphis facility-are creating persistent cash flow pressures and will continue to weigh on net margins and returns on invested capital until full utilization and efficiency are reached.
The rapid growth in data center product lines exposes AAON to cyclicality and technological shifts in that end-market; any slowdown in hyperscale or AI data center investment, or disruption from new cooling technologies, could adversely affect revenue growth and future backlog quality.
Lingering softness in nonresidential construction and rooftop HVAC markets, compounded by high interest rates and longer recovery timeframes, may suppress demand for AAON's core products, pressuring revenue and potentially leading to underutilization of new capacity.
Sustained increases in SG&A (from training, consulting, technology, and ramping new accounts), labor cost inflation, and startup inefficiencies threaten to erode operating leverage and delay the achievement of long-term gross margin and earnings growth objectives.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $95.75 for AAON based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $105.0, and the most bearish reporting a price target of just $85.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $283.0 million, and it would be trading on a PE ratio of 35.1x, assuming you use a discount rate of 8.2%.
Given the current share price of $78.16, the analyst price target of $95.75 is 18.4% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Data Center Demand And Industrial Efficiency Will Shape Performance Through 2027