AAON, INC. (AAON) stock intrinsic value fair value estimate & owner earnings analysis

AAON makes semi-custom rooftop heating and cooling units for commercial buildings, sold through independent representatives across the United States and Canada, and through its BASX brand builds custom cooling and liquid-cooling equipment for hyperscale data centers and cleanrooms. The data center side has transformed the company: sales went from $535 million in 2021 to $1.44 billion in 2025 and $1.12 billion in just the first half of 2026, and year-end 2025 backlog was $1.83 billion, more than double a year earlier, mostly BASX liquid-cooling orders. Meanwhile AAON-brand rooftop sales fell 8% in 2025 on slower construction starts, the January 2025 refrigerant change, coil shortages and a disruptive new ERP system at Longview. How we measure earnings. We start from operating cash flow, remove working-capital swings (in 2025 receivables, contract assets and inventory absorbed $236 million of cash to fund the backlog, which we treat as timing, not lost earnings), subtract stock compensation, and subtract the share of capital spending needed to keep the business where it is rather than to grow it. Because AAON has spent heavily on new plants in years when sales barely grew, that rule charges most of 2024's $213 million of spending as upkeep, which makes 2024 look unusually poor ($0.18 a share). On this basis owner earnings per share were $0.36 to $0.65 from 2016 to 2021, then $1.07, $1.68, $0.18 and $0.48 from 2022 to 2025. Adding back interest to see the business before its lenders, the post-BasX years run $1.10, $1.74, $0.22 and $0.68, a median near $0.89. We measure from 2022 because the BasX acquisition made this a different business. These figures replace earlier ones that subtracted all capital spending and left in working-capital swings; the previous figures are not comparable. What we credit as growth. Only the backlog is in the bag. First-half 2026 net income was $96 million and sales were up 77%, so we expect 2026 cash earnings before interest of about $2.20 a share in the base case as backlog ships. That is above the trailing figure, but 2025's actual increase was far larger (from $0.22 to $0.68), so it is not an acceleration. Beyond the backlog we credit only modest growth: AAON has expanded its own plants for decades out of its own cash, and the core rooftop business grew about 7% a year from 2016 to 2021. We do not credit further share gains in data centers, margin recovery beyond levels already reached, or new markets. Base case: the backlog ships through 2026 and 2027, then data center orders settle to a lower but durable level and earnings ease to about $1.50 a share by 2028, still below the $1.74 reached in 2023 on half today's sales. They then grow about 4% a year through year ten as the rooftop business recovers on capacity already built, and hold level to year thirty on replacement demand from a large installed base. Business value is about $26.60 a share; less $435 million of revolver borrowings ($5.20 a share) leaves $21.41. Bear case: one full commercial construction downturn like 2008 to 2010, when AAON's sales fell about 18% over two years, at the same time hyperscale customers use their contractual right to cancel or defer orders (the filing says data center orders carry more cancellation and timing risk, and three customers each account for over 10% of receivables). Earnings drop from about $1.60 in 2026 to $0.60 a share in 2028 and 2029, recover to $0.85, and creep up 2% a year, with nothing after year 25. The business is worth about $12.20 a share; after debt about $7.00. Even at the trough, cash flow of roughly $50 million covers interest of roughly $25 million on the floating-rate revolver, which matures May 27, 2030 and carries a leverage covenant (1.77 times at year-end 2025). Bull case: BASX keeps winning liquid-cooling programs at today's pace and the rooftop business recovers, taking earnings to $2.50 to $2.60 a share in 2026 and 2027, then growing about 6% a year. The business is worth about $51 a share, and $46 after debt. Margin-of-safety price. We are fairly confident about the next eighteen months, because they are largely a signed backlog, and much less confident about what comes after. The earnings record is short and lumpy because of heavy plant spending, and a large share of the backlog sits with a few hyperscale customers who can cancel or defer. The worst plausible outcome is a data center pullback during a construction slump, with the company having just borrowed to build capacity and fund receivables. The structure would survive it: debt is modest relative to normal earnings, the plants are hard assets, and the rooftop franchise has decades of history. If we are wrong about how durable the data center business is and how fast margins recover, the shares are worth roughly the bear figure, about $7. The price assumes a three-to-four-year holding period, and the dividend is about $0.40 a share a year in the meantime. From $10 a share, the base case playing out within four years plus the dividend implies roughly double that price, about a 20% annual return. The bear case implies a loss of about a third from that price rather than a total loss, and the bull case leaves plenty of room above that. Above $10, a bad data center outcome would leave too little margin for the 20% target.