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Powell Industries (POWL) Up 70.4% YTD: What's Next for Investors?
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Powell Industries, Inc. (POWL - Free Report) shares have surged 70.4% year to date, outpacing the Zacks Manufacturing - Electronics industry and the Industrial Products sector, which have returned 15% and 2.5%, respectively. Closing at $150.65 in the last trading session, the stock is trading below its 52-week high of $209.14 but significantly higher than its 52-week low of $58.30.
The electrical equipment manufacturer’s impressive performance can be largely attributed to its strong foothold and improving conditions in two key markets, which are oil and gas and petrochemical.
A strong pipeline of projects within the LNG market and its growing presence across the data center and electric utility sectors, along with a solid backlog, are key catalysts behind the company’s growth. Its diversification efforts beyond its core oil, gas and petrochemical markets have enhanced its market share across the utility, commercial and other industrial markets. Courtesy of strength across its business, POWL has outperformed the S&P 500’s growth of 16.7% in the year-to-date period.
Price Performance
Image Source: Zacks Investment Research
Factors Driving the Stock
Powell’s second-quarter fiscal 2024 (ended March 2024) results indicated strong year-over-year growth, with revenues growing 49% to $255 million, driven by continued strength and healthy levels of project activity across its end markets. New orders totaled $235 million, reflecting strong growth in bookings that led to a backlog of $1.3 billion exiting the fiscal second quarter. Importantly, the $235 million of orders consisted of a solid volume of small and medium-sized awards that reflected the company’s core competencies and well-balanced portfolio across markets.
The company’s revenues in the quarter were primarily driven by the strong performance of its largest markets, oil & gas and petrochemical, which grew 66% and 93%, respectively. POWL is witnessing several favorable trends in oil & gas and petrochemical markets that hold promise for its long-term growth.
This includes growth in energy transition projects, such as biofuels, carbon capture and hydrogen. Significant project awards supported by high investments in LNG, related gas processing and petrochemical processes have set POWL apart as a leading supplier of critical electrical infrastructure.
Increasing demand for electrical power from data centers is also creating a new opportunity for growth for this company. Powell is strengthening its participation across the electrical power value chain and benefiting from momentum in data center and utility end markets. Notably, it witnessed strong bookings in electric utility and commercial markets in the first six months of fiscal 2024 in the United States and the United Kingdom.
It's worth noting that the Zacks Consensus Estimate for POWL’s fiscal 2024 (ending September 2024) revenues is pegged at $888.1 million, indicating 27% growth year over year. The consensus mark for earnings per share is pegged at $9.04, which has remained stable in the past 60 days, indicating 119.4% growth year over year.
Image Source: Zacks Investment Research
Better-Than-Industry Returns
POWL’s trailing 12-month return on assets (“ROE”) is indicative of its growth potential. ROE for the trailing 12 months is 27.93%, much higher than the industry’s 9.87%, reflecting the company’s efficient usage of shareholders’ funds.
Image Source: Zacks Investment Research
Return on assets is 12.96%, ahead of the industry’s 5.55%, indicating that the company has been utilizing its assets efficiently to generate returns.
Image Source: Zacks Investment Research
Stock Valuation
With a forward 12-month price-to-earnings of 16.74X, which is well below the industry average of 24.70X, the stock presents a potentially attractive valuation for investors. Also, the stock is cheap compared with many of its peers like Eaton Corporation (ETN - Free Report) and Schneider Electric S.E. (SBGSY - Free Report) , which are overvalued compared with the industry.
Image Source: Zacks Investment Research
What Ails the Stock?
Despite the positives, Powell has been coping with the adverse impacts of the high cost of sales and operating expenses. For instance, in the first six months of fiscal 2024, its cost of sales climbed 37.8% year over year while selling, general and administrative expenses increased 6.7%. Cost of sales, as a percentage of revenues, were 75% for the period. Also, the company continues to witness supply-chain constraints for specifically engineered components, which might inflate costs and delay the delivery of products to its customers.
Stiff competition from major players like Franklin Electric Co., Inc. (FELE - Free Report) could hamper the company’s ability to maintain its market share. Additionally, macroeconomic headwinds, such as underlying inflation and higher interest rates, might create a challenging backdrop.
Apart from this, POWL is currently trading below its 50-day moving average, indicating a bearish trend.
Image Source: Zacks Investment Research
Conclusion
Given the promising long-term prospects and strong return on equity, maintaining a position in Powell, which currently carries a Zacks Rank #3 (Hold), appears prudent at present. This stance reflects confidence in Powell's growth trajectory and its potential to deliver sustained value to investors over time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Powell Industries (POWL) Up 70.4% YTD: What's Next for Investors?
Powell Industries, Inc. (POWL - Free Report) shares have surged 70.4% year to date, outpacing the Zacks Manufacturing - Electronics industry and the Industrial Products sector, which have returned 15% and 2.5%, respectively. Closing at $150.65 in the last trading session, the stock is trading below its 52-week high of $209.14 but significantly higher than its 52-week low of $58.30.
The electrical equipment manufacturer’s impressive performance can be largely attributed to its strong foothold and improving conditions in two key markets, which are oil and gas and petrochemical.
A strong pipeline of projects within the LNG market and its growing presence across the data center and electric utility sectors, along with a solid backlog, are key catalysts behind the company’s growth. Its diversification efforts beyond its core oil, gas and petrochemical markets have enhanced its market share across the utility, commercial and other industrial markets. Courtesy of strength across its business, POWL has outperformed the S&P 500’s growth of 16.7% in the year-to-date period.
Price Performance
Image Source: Zacks Investment Research
Factors Driving the Stock
Powell’s second-quarter fiscal 2024 (ended March 2024) results indicated strong year-over-year growth, with revenues growing 49% to $255 million, driven by continued strength and healthy levels of project activity across its end markets. New orders totaled $235 million, reflecting strong growth in bookings that led to a backlog of $1.3 billion exiting the fiscal second quarter. Importantly, the $235 million of orders consisted of a solid volume of small and medium-sized awards that reflected the company’s core competencies and well-balanced portfolio across markets.
The company’s revenues in the quarter were primarily driven by the strong performance of its largest markets, oil & gas and petrochemical, which grew 66% and 93%, respectively. POWL is witnessing several favorable trends in oil & gas and petrochemical markets that hold promise for its long-term growth.
This includes growth in energy transition projects, such as biofuels, carbon capture and hydrogen. Significant project awards supported by high investments in LNG, related gas processing and petrochemical processes have set POWL apart as a leading supplier of critical electrical infrastructure.
Increasing demand for electrical power from data centers is also creating a new opportunity for growth for this company. Powell is strengthening its participation across the electrical power value chain and benefiting from momentum in data center and utility end markets. Notably, it witnessed strong bookings in electric utility and commercial markets in the first six months of fiscal 2024 in the United States and the United Kingdom.
It's worth noting that the Zacks Consensus Estimate for POWL’s fiscal 2024 (ending September 2024) revenues is pegged at $888.1 million, indicating 27% growth year over year. The consensus mark for earnings per share is pegged at $9.04, which has remained stable in the past 60 days, indicating 119.4% growth year over year.
Image Source: Zacks Investment Research
Better-Than-Industry Returns
POWL’s trailing 12-month return on assets (“ROE”) is indicative of its growth potential. ROE for the trailing 12 months is 27.93%, much higher than the industry’s 9.87%, reflecting the company’s efficient usage of shareholders’ funds.
Image Source: Zacks Investment Research
Return on assets is 12.96%, ahead of the industry’s 5.55%, indicating that the company has been utilizing its assets efficiently to generate returns.
Image Source: Zacks Investment Research
Stock Valuation
With a forward 12-month price-to-earnings of 16.74X, which is well below the industry average of 24.70X, the stock presents a potentially attractive valuation for investors. Also, the stock is cheap compared with many of its peers like Eaton Corporation (ETN - Free Report) and Schneider Electric S.E. (SBGSY - Free Report) , which are overvalued compared with the industry.
Image Source: Zacks Investment Research
What Ails the Stock?
Despite the positives, Powell has been coping with the adverse impacts of the high cost of sales and operating expenses. For instance, in the first six months of fiscal 2024, its cost of sales climbed 37.8% year over year while selling, general and administrative expenses increased 6.7%. Cost of sales, as a percentage of revenues, were 75% for the period. Also, the company continues to witness supply-chain constraints for specifically engineered components, which might inflate costs and delay the delivery of products to its customers.
Stiff competition from major players like Franklin Electric Co., Inc. (FELE - Free Report) could hamper the company’s ability to maintain its market share. Additionally, macroeconomic headwinds, such as underlying inflation and higher interest rates, might create a challenging backdrop.
Apart from this, POWL is currently trading below its 50-day moving average, indicating a bearish trend.
Image Source: Zacks Investment Research
Conclusion
Given the promising long-term prospects and strong return on equity, maintaining a position in Powell, which currently carries a Zacks Rank #3 (Hold), appears prudent at present. This stance reflects confidence in Powell's growth trajectory and its potential to deliver sustained value to investors over time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.