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.