Powell Industries, Inc. (POWL) is a leading provider of custom-engineered equipment and systems. The company engaged in the designing, development, manufacturing, sale, and services of these systems. In the last reported quarter, the company’s revenue of $288.17 million surpassed the analysts’ expectations of $222.18 million. Also, its EPS of $3.79 was above the estimate of $2.16.

The revenue increase from the prior period was primarily driven by strong growth in the Oil and Gas sector, which increased 56% year-over-year to $114.3 million. Also, revenues from the Electric Utility sector amounted to $57 million, indicating an increase of 30%.

During the third quarter, POWL’s new orders totaled $356 million, which were spread broadly across its key end markets, and its backlog was $1.30 billion as of June 30, 2024. The orders represent the estimated value of contracts added to the company’s existing backlog and its continuous strides toward further expansion.

Amid the growth in the manufacturing industry and overall economic growth, the global industrial machinery market has grown strongly in recent years. The market is poised to grow to $777.35 billion by 2028, at a CAGR of 7.2%, driven by technological advances, market expansion, and adoption of robotics and automation.

Powell stands to capitalize on the industry’s solid standing with its wide product portfolio. The company plays a crucial role in the industrial sector, especially with its electrical equipment products like electrical houses and medium-voltage circuit breakers.

Currently, a certain degree of uncertainty is lingering around the future prospects of POWL as it prepares to announce its financial results for the fiscal fourth quarter and year ended September 30, 2024, on November 19, 2024. Analysts have mostly projected optimistic expectations on its revenue and EPS for the quarter, with some alternate opinions.

Shares of POWL have gained 114.4% over the past six months and 317.3% over the past year to close its last trading session at $343.86.

Let’s look at factors that could influence POWL’s performance in the upcoming months.

Robust Financials

For the third quarter that ended June 30, 2024, POWL’s revenues increased 49.8% year-over-year to $288.17 million. Its gross profit grew 91.6% from the year-ago value to $81.74 million. The company’s operating income of $57.29 million indicates growth of 165.8% year-over-year.

Furthermore, the company reported net income and EPS of $46.22 million and $3.79, reflecting increases of 150.5% and 149.3% from the prior year’s quarter, respectively. Also, POWL’s total assets stood at $868.98 million as of June 30, 2024, compared to $752.24 million as of September 30, 2023.

Favorable Analyst Estimates

Analysts expect POWL’s revenue for the fourth quarter (ended September 2024) to come in at $286.49 million, indicating an increase of 37.3% year-over-year. The consensus EPS estimate of $3.55 for the same period reflects an 82.1% year-over-year improvement. Further, the company has maintained an impressive earning history, having topped the consensus revenue and EPS estimates in each trailing four quarters.

For the fiscal year 2024, the company’s revenue and EPS are anticipated to grow 50.2% and 185.9% year-over-year to $1.05 billion and $11.78, respectively. In addition, Street expects its revenue and EPS for the fiscal year 2025 to grow 6% and 4.9% from the prior year to $1.11 billion and $12.36, respectively.

Robust Profitability

POWL’s trailing-12-month EBIT margin and net income margin of 16.12% and 13.77% are 56.3% and 114.2% higher than the 10.31% and 6.43% industry average, respectively. Its trailing-12-month Levered FCF margin of 16.81% is significantly higher than the industry average of 6.66%.

Elevated Valuation

In terms of forward non-GAAP P/E, POWL is currently trading at 29.19x, 36.4% higher than the industry average of 21.40x. The stock’s forward EV/Sales and Price/Sales of 3.57x and 3.92x are considerably higher than the industry average of 2.04x and 1.64x, respectively.

Additionally, the stock’s forward EV/EBITDA and Price/Book of 20.42x and 8.75x are currently 63.2% and 167% higher than the industry averages of 12.51x and 3.28x, respectively.

POWR Ratings Reflect Uncertainty

POWL’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. POWL has an A grade for Quality, consistent with its higher-than-industry profitability.

However, the company’s elevated valuation has earned it a C grade for Value.

POWL is ranked #42 among the 79 stocks in the A-rated Industrial - Machinery industry.

Beyond what I have stated above, we have also given POWL grades for Momentum, Sentiment, Stability, and Growth. Get access to all the POWL ratings here.

Bottom Line

POWL reported solid financial results in the last reported quarter. Further, the company’s long-term growth opportunities are solid, driven by the increasing number of new orders, innovative products, and widening sector scope. However, it continues to grapple with elevated valuation, short-term uncertainties, and rigid competition from its peers like Fluence Energy, Inc. (FLNC) and Nextracker, Inc. (NXT).

Given POWL’s elevated valuation and near-term prospects, waiting for a better entry point in this stock seems prudent.

Stocks to Consider Instead of Powell Industries, Inc. (POWL)

Given its near-term uncertain prospects, the odds of POWL outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these A (Strong Buy) or B (Buy) stocks from the Industrial - Machinery industry instead:

Smiths Group PLC (SMGZY)

Donaldson Company, Inc. (DCI)

Techtronic Industries Co. Ltd. ADR (TTNDY)

For exploring more A and B-rated industrial stocks, click here.

What To Do Next?

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POWL shares were trading at $317.63 per share on Wednesday afternoon, down $26.23 (-7.63%). Year-to-date, POWL has gained 261.12%, versus a 26.92% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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