Episode Details

AAON, Inc. (AAON) Q2 2026 — Reported BEFORE the open on August 10 (8-K accepted by EDGAR 07:12 ET). Net sales $627.0M, +101.2%; GAAP diluted EPS $0.68 vs ~$0.51 expected; backlog $1.97B, +98.0%. FY26 sales growth guidance RAISED to 55-60% - and FY26 gross margin guidance CUT to 25-26%. The stock fell 5.90% on the print, closing the week at $84.89. The number nobody printed: BASX-branded bookings were roughly $156M against $345M of BASX-branded revenue - a book-to-bill of 0.45x. The record $1.97B backlog fell $158.6M sequentially because the data-center order book is being drained faster than it is refilled. THE CALL: AVOID (4/5, A RECORD QUARTER, HALVED RETURNS ON CAPITAL) — base-case value ~$52.0 vs ~$84.89 today. KEY METRICS: - CALL: AVOID 4/5 - fair value ~$52 vs $84.89 (-39%). Ten-year DCF off the FY26 guide midpoint of $2.27B: growth 16% fading to 4%, EBIT margin 13.5% to 15.5%, 10% discount rate, 3.0% terminal growth = $51.70/sh. Bear $27.33, bull $74.26, weighted $51.25. - REVERSE DCF: at $84.89 the enterprise value is $7.56B - 25.3x trailing EBITDA and ~35x our $2.41 FY26E EPS. That price requires a 19.9% ten-year revenue CAGR or a flat 22.3% operating margin. AAON's best-ever was 19.5%, in 2023. - STREET: Buy - 5 buy / 0 hold / 0 sell. Every covering analyst CUT after the print and every one kept its rating: Oppenheimer $145 to $125, D.A. Davidson $125 to $105, Baird $102 to $98. Median $105. We DIVERGE. - THE QUARTER WAS EXTRAORDINARY: net sales $627.0M (+101.2%), operating income $68.9M (+192.1%), GAAP diluted EPS $0.68 vs ~$0.51 expected. BASX-branded sales $344.8M (+216.2%); AAON-branded $282.2M (+39.3%). - THE TAX RATE DID SOME OF THE WORK: the effective rate was 9.8% ($6.2M on $62.8M pre-tax) against 23.6% in Q1, driven by option-exercise windfalls. At Q1's rate diluted EPS would have been ~$0.57 - still a beat, but not the headline. - BACKLOG - THE NUMBER THAT MATTERS: total $1,970.8M (+98.0% y/y) but DOWN 7.4% sequentially from $2,129.5M. BASX-branded $1,430.4M fell $189.3M in the quarter. Derived book-to-bill: total 0.75x, AAON 1.11x, BASX 0.45x. - THE RAISE WAS ALSO A CUT: FY26 sales growth 55-60% (from 40-45%) but gross margin 25-26% (from 27-28%) - about $45M of gross profit, ~$0.43/share. H1 delivered $1,123.9M, so H2 implies ~$574M a quarter, BELOW the $627.0M just printed. - CASH IS THE PROBLEM: H1 operating cash flow $55.0M less $97.3M of capex = -$42.3M of free cash flow, after -$191.4M in 2025. Revolver drawn $435.0M of $600M; cash $12.7M. 2026 capex ~$190M. Net debt ~1.5x EBITDA. - RETURN ON CAPITAL - THE CORE OF THE CALL: ROIC was 22.9% in 2023, 16.6% in 2024, 9.1% in 2025 and 11.4% trailing. Invested capital rose $785.5M to $1,474.3M (+88%) while after-tax operating profit fell $179.7M to $168.7M. What to watch: Bullish: BASX book-to-bill back above 1.0x for two consecutive quarters, and full-year free cash flow crossing zero. Bearish: Q3 gross margin below the 25% floor, another sequential fall in BASX backlog, or revolver drawings above $500M. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision. Learn investing free in the Charged Alpha app: https://chargedalpha.com/app?source=youtube&ref=video Educational only. Not financial advice.