Carrier's Q4 2025 Earnings Confirm Residential Weakness, Outlook Cautious for 2026

What happened

Carrier Global's Q4 2025 earnings call revealed sustained strength in long-cycle commercial HVAC and aftermarket businesses, as highlighted in recent news. However, executives noted that residential and light commercial demand weakened more than expected in late 2025, confirming prior concerns from the DeepValue report. The report had already documented a ~30% decline in Americas residential HVAC in Q3 2025, leading to a guidance cut and net debt rising to $10.5 billion. This alignment underscores Carrier's significant exposure to cyclical downturns in housing and European markets, despite secular tailwinds in data centers and services. Looking ahead, Carrier's 2026 outlook assumes continued softness, reinforcing the cautious base-case scenario from the DeepValue analysis.

Implication

The earnings call confirms the DeepValue report's warnings about residential demand and European challenges, reducing the likelihood of near-term upside from current levels. While strong commercial and aftermarket performance provides a buffer, it may not fully offset the drag from residential sectors in 2026, as reflected in the report's base-case probability of 50%. Rising net debt from aggressive buybacks heightens leverage risks if free cash flow underperforms, aligning with the report's downside boundaries and thesis breakers. Investors should monitor upcoming quarters for signs of residential stabilization and European recovery, as per the report's 90-day checkpoints and early warning indicators. Until clearer evidence emerges, maintaining a wait-and-see approach or seeking entry near $50, as suggested in the report, offers a better risk-reward profile.

Thesis delta

The news does not materially shift the investment thesis but confirms the existing risks highlighted in the DeepValue report, such as residential weakness and European headwinds. It reinforces the 'WAIT' rating by validating the cautious 2026 outlook and the need for patience. Therefore, the thesis remains unchanged, with continued emphasis on waiting for a lower entry price or proof of sustained organic growth and margin recovery.