While 2020 was a rough year for the economy as whole, it ended up being pretty good for the stock market. The S&P finished the year at a new record high. Not all segments soared, but the HVAC industry did very well.

It was a wild ride for Carrier Global Corp. The company debuted on Wall Street on April 3, after being spun off from United Technologies Corp., and started trading at $16 a share. The stock fell below $14 a couple of weeks later but then began climbing and has yet to stop. Carrier ended the year up more than 200%.

Carrier’s board announced at the end of the year they would pay down $1.5 billion in debt, saying the move reflected their confidence in the company’s performance. The board also increased the dividend paid on each share of Carrier common stock to 12 cents from 8 cents.

“We are well-positioned to capitalize on key trends in healthy, safe, and sustainable building, and cold chain solutions, and we continue to execute against our strategic growth initiatives and aggressive cost containment plans," said Carrier President and CEO Dave Gitlin.

Some analysts say Carrier can unlock even more potential if it sells off its fire and security business. That’s a move United Technologies considered before the spin off. The HVAC business alone has plenty of potential for analysts due to continuing demand from consumers and home builders, as well as corporate clients seeking to improve IAQ.

A report from Citigroup Inc. said Carrier and Trane Technologies PLC are both well-positioned to benefit from their crucial role in providing cold chain technology for vaccine distribution. Trane is benefitting from the same factors as Carrier. That company’s stock finished the year above its pre-pandemic high and doubled from its mid-March low.

Factories Still Catching Up With HVAC Inventory Demand

The stock price for Johnson Controls International PLC is also more than twice as high now as it was at the end of March. On a year-to-year basis, it’s up about 25%.

Lennox International Inc. also saw its stock price finish higher at the end of the year than at the beginning, although without the impressive bounce back since it never fell that low. The strong performance should continue; Lennox executives expect revenue growth of 4% to 8% in 2021.

Executives from Emerson recently shared their outlook for the start of the year on a conference call with analysts. Jamie Froedge, Emerson’s executive president of Commercial & Residential Solutions, said residential HVAC demand was strong at the end of 2020. Froedge sees little reason to believe that will change in the near-term. The company sees demand across a range of products sold to residential contractors, including garbage disposals and wet/dry vacuums, indicating consumers continue to invest in their homes.

“We don’t see the momentum slowing down in the interim,” he said.

The biggest challenge is demand outstripping supply. Emerson CEO David Farr said the company’s HVAC plants are running full-out. One issue is getting enough people and materials to produce the equipment. The tremendous demand and supply challenges mean Emerson sees an inventory backlog for its HVAC equipment.

“I could probably name one other time in my 20-year history as CEO when they built inventory backlog,” Farr said. “The demand is higher than the inventories can support.”

In the spring of 2020, orders from distributors were too low, he said. Demand exceeded expectations. Froedge said demand and supply will eventually find equilibrium, but he said that’s several months away. There’s a chance of overshooting, but not any time soon.

When residential demand does ease, Emerson executives expect a shift to commercial demand. They don’t foresee a surge in non-residential construction activity even if the pandemic subsides. Still, there should be more demand for replacements and retrofits.

Wall Street Rewards Recent Developments

Emerson is a diversified manufacturer, although its HVAC division is a major component. Other large HVAC manufacturers are part of diversified conglomerates, so it’s harder to see the impact of the HVAC market on their stock prices. One company benefitted from placing more emphasis on its HVAC business — Modine Manufacturing Co. The company sold off its automotive business at the start of November and saw its stock price nearly double since then.

“The enhanced operating profile resulting from this transaction is a critical component of our strategic objectives and will allow us to provide additional capital and resources to accelerate the growth of our commercial HVAC and data center businesses,” said Michael Lucareli, Modine’s interim CEO.

Demand for HVAC benefits companies beyond equipment manufacturers. The stock price for Chemours Co. is about $10 higher than it was a year ago and more than three times higher than its March low. The company manufacturers a mix of chemicals, including refrigerants. Chemours was spun off from DuPont in mid-2015, and the stock has had its ups and downs. Analysts attribute part of its recent success to the outlook for refrigerants.

That outlook received a boost with the passage of the AIM Act. The act will allow the EPA to administer an 85% phasedown of HFC refrigerant production and use over a 15-year timeframe. Prior to this, the phasedown was a patchwork of state laws.

"Chemours has been consistent in our support of orderly HFC phase down actions globally,” said Mark Vergnano, the company’s president and CEO. “We are pleased that Congress, with bipartisan support in both the Senate and the House, believed the provisions of the AIM Act can deliver environmental and economic benefits as the United States continues to take important steps to address climate change.”