Madison Air Solutions (MAIR) has ample room for profitable growth in the global heating, ventilation, and air conditioning vertical, with its custom solutions steering it away from most commoditized markets, RBC Capital Markets said Monday.

RBC said it rejects the notion that Madison is at peak margins. The company follows the 80/20 operating principles, which should drive 50 to 70 basis points of annual margin expansion, according to the note.

The attractive 70% replacement and 30% new construction split also helps drive healthy margins. Services and aftermarket mix at 10% of revenues is the lowest of its big four HVAC peers but offers a growth opportunity, the brokerage said.

RBC estimates Madison's commercial segment to grow by mid-to-high single digits and residential by low-single digits. Management targets 20 to 75 basis points of EBITDA margin expansion per year, and bolt-on mergers and acquisitions should also provide growth opportunities, according to the note.

RBC maintained an outperform rating on Madison Air with a price target of $48.

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