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Powell Industries, Inc. POWL shares have surged 86.9% over the past year, outpacing the Zacks Manufacturing - Electronics industry and the Industrial Products sector’s returns of 1.4% and 11.3%, respectively. The company has outperformed other industry players like Eaton Corporation ETN and Franklin Electric Co., Inc. FELE, which have returned 21.6% and 3.3%, respectively, over the same time frame.
Closing at $155.41 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 $72.51.
As a prominent electrical equipment manufacturer, POWL rides on its strong foothold and improving conditions in two key markets — oil and gas, and petrochemical. The company’s efforts to strengthen its project portfolio beyond the core oil and gas, and petrochemical end markets have also enhanced its market share across the utility, commercial and other industrial markets.
Powell’s diversification efforts have led to impressive growth in the backlog level, which was sturdy at $1.3 billion (exiting June 2024). Out of this backlog, the company expects to recognize $841 million as revenues by the end of third-quarter fiscal 2025 (ending June 2025). Courtesy of strength across its business, POWL has outperformed the S&P 500’s growth of 19.9% in the past year.
POWL Outperforms Industry, Sector & S&P500
Factors Favoring POWL
Powell’s third-quarter fiscal 2024 (ended June 2024) results indicated strong year-over-year growth, with revenues rising 50% to $288 million, driven by persistent strength and healthy levels of project activity across its oil and gas, and petrochemical markets. New orders totaled $356 million, which were spread broadly across its major markets. The bookings consist of a healthy volume of both small and medium-sized awards, reflecting the company’s core competencies and well-balanced portfolio across markets.
POWL’s revenues in the quarter were primarily driven by the strong performance from its largest markets, oil and gas, and petrochemical, which grew 56% and 158% year over year, respectively. Several favorable trends in oil and gas, and petrochemical markets hold promise for the company’s long-term growth.
This includes strength in the U.S. natural gas market that has been supporting solid investments in LNG, related gas processing and petrochemical processes. A strong pipeline of projects in the energy transition sector, including biofuels, carbon capture and hydrogen, has positioned POWL as a leading supplier of critical electrical infrastructure.
The company is also benefiting from increased demand for electrical power from data centers. Powell is strengthening its participation across the electrical power value chain and benefiting from solid momentum in data center and utility markets. The company witnessed strong bookings in electric utility and commercial markets in the first nine months of fiscal 2024 in the United States.
Powell’s capacity expansion initiatives, particularly at the product factory in Houston, bode well. The expansionary efforts have been enabling the company to better serve its customers with enhanced offerings across data centers, hydrogen, carbon capture and other transitional energy markets.
Given the strength across its businesses, the Zacks Consensus Estimate for POWL’s fiscal 2024 (ending September 2024) revenues is pegged at $1.01 billion, indicating 45% year-over-year growth.
Better Returns Than Industry
POWL’s trailing 12-month return on equity (“ROE”) is indicative of its growth potential. ROE for the trailing 12 months is 33.09%, much higher than the industry’s 10.01%, reflecting the company’s efficient use of shareholders’ funds.
Return on assets is 15.56%, also ahead of the industry’s 5.62%, indicating that Powell has been utilizing its assets efficiently to generate returns.
Stock Valuation
With a forward 12-month price-to-earnings ratio of 12.52X, which is well below the industry average of 21.44X, the POWL stock presents an attractive valuation for investors. Also, the stock is cheaper than its peer, Schneider Electric S.E. SBGSY, which is overvalued than the industry.
Price-to-Earnings (Forward 12 Months)
Northbound Earnings Estimates
Earnings estimates for Powell have been going up over the past 60 days, reflecting analysts’ optimism. The Zacks Consensus Estimate for fiscal 2024 and fiscal 2025 (ending September 2025) have been revised upward over the same time frame. As earnings estimates increase, the stock is likely to follow suit.
The Zacks Consensus Estimate for earnings for fiscal 2024 is pegged at $12.01, suggesting year-over-year growth of 191.5%. The same for fiscal 2025 is pinned at $12.44, indicating growth of 3.6%.
Should You Buy POWL Now?
Solid momentum across end markets, constant focus on project executions, capacity expansions and innovative product offerings position Powell favorably for robust growth in the quarters ahead.
POWL is well-positioned to deliver sustained growth and shareholders’ value with a favorable valuation compared with the industry and its peers, and strong earnings projections. We believe that the POWL stock is an ideal candidate for investors' portfolio addition. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks Investment Research
Eaton Corporation plc ETN has collaborated with Tesla Inc. TSLA to boost home energy storage and solar installations. Per this collaboration, Tesla’s Powerwall will support Eaton’s new AbleEdge smart breakers and make it easier for homeowners to achieve intelligent load management that will help to optimize energy usage and extend the time of backup during a grid outage.
Utilizing the joint expertise and expansive installed base of Eaton and Tesla, these companies are bringing energy storage with load management solutions to the mainstream market. The consumers will be able to utilize dynamic, automated energy load management to intelligently extend available battery duration in case of an outage.
A transition is evident in the energy space and the operators are producing more electricity from renewable energy sources. Homeowners are looking to meet their energy needs from their own generation and not solely dependent on the grid for power supply. Eaton and Telsa will help homeowners and installers to achieve intelligent load management.
Eaton’s Everything as a Grid Assists Homeowners
Eaton’s Everything as a Grid approach supports the two-way flow of electricity, enabling homeowners to produce and consume renewable energy when they need it. For more than a century, power has flowed in one direction—from centralized power plants into homes. Courtesy of solar energy, homes can now act as energy hubs by producing their own power and sharing the excess to support the grid.
Eaton is creating flexible power systems that manage energy consumption in an integrated way and transform each home as an energy source. Electrification of nearly everything is increasing electricity demand and requires new ways to manage energy costs. More energy flowing bidirectionally, to and from the grid, will reduce the cost of energy for customers.
ETN has been developing low-cost new products for efficient energy usage. The company has laid out a 10-year plan that includes a $3 billion investment in R&D programs, which will allow the company to create sustainable products.
Eaton Expanding Operations
Eaton operates in several markets globally. Strategic acquisitions and joint ventures ("JV") allow the company to expand into new markets and enhance its revenue stream. The company completed two acquisitions in the second quarter of 2024, further strengthening its Electrical Americas and Electrical Global segment.
Eaton’s products are supplied to around 175 countries and the acquisition will further expand the operation and product offerings of the company. On June 10, 2024, Eaton formed a JV company with Malaysia-based SIA Engineering Company, which will inspect, test, repair, maintain, modify and overhaul Eaton-manufactured aircraft components installed on airframe and engine fuel systems and hydraulic systems.
Eaton’s Earnings Estimates Moving North
Riding on the back of strong performance in the first half of 2024, expanding operations and new product offerings, the company now projects adjusted earnings per share (EPS) in the range of $10.65-$10.75 for 2024, indicating an increase of 17% at the midpoint from the prior-year level. ETN raised its organic sales guidance for 2024 from 7-9% to 8-9%.
The Zacks Consensus Estimate for ETN’s 2024 and 2025 EPS has moved up 1.5% and 1.9%, respectively, in the last 60 days. The Zacks Consensus Estimate for 2024 EPS of Illinois Tool Works ITW, another operator in this space, has moved up by 0.2% in the past 60 days.
Eaton’s Shares Outperform Industry
Shares of Eaton have gained 23.2% in the past year compared with its industry’s growth of 4.6%.
Zacks Rank
Eaton currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Investment Research
Powell Industries has recently been on Zacks.com's list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock's performance in the near future.
Over the past month, shares of this energy equipment company have returned +1.1%, compared to the Zacks S&P 500 composite's +2.5% change. During this period, the Zacks Manufacturing - Electronics industry, which Powell Industries falls in, has lost 3.2%. The key question now is: What could be the stock's future direction?
Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Revisions to Earnings Estimates
Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.
We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
For the current quarter, Powell Industries is expected to post earnings of $3.49 per share, indicating a change of +79% from the year-ago quarter. The Zacks Consensus Estimate has changed +59.4% over the last 30 days.
The consensus earnings estimate of $12.01 for the current fiscal year indicates a year-over-year change of +191.5%. This estimate has changed +32.9% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $12.44 indicates a change of +3.6% from what Powell Industries is expected to report a year ago. Over the past month, the estimate has changed +34.1%.
Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Powell Industries is rated Zacks Rank #1 (Strong Buy).
The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:
12 Month EPS
Projected Revenue Growth
While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.
For Powell Industries, the consensus sales estimate for the current quarter of $276.7 million indicates a year-over-year change of +32.6%. For the current and next fiscal years, $1.01 billion and $1.05 billion estimates indicate +45% and +4% changes, respectively.
Last Reported Results and Surprise History
Powell Industries reported revenues of $288.17 million in the last reported quarter, representing a year-over-year change of +49.8%. EPS of $3.79 for the same period compares with $1.52 a year ago.
Compared to the Zacks Consensus Estimate of $217.37 million, the reported revenues represent a surprise of +32.57%. The EPS surprise was +78.77%.
The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates each time over this period.
Valuation
No investment decision can be efficient without considering a stock's valuation. Whether a stock's current price rightly reflects the intrinsic value of the underlying business and the company's growth prospects is an essential determinant of its future price performance.
Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
Powell Industries is graded B on this front, indicating that it is trading at a discount to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.
Conclusion
The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Powell Industries. However, its Zacks Rank #1 does suggest that it may outperform the broader market in the near term.
Zacks Investment Research
Reporter Name | Mcgill James W |
Relationship | Director |
Type | Sell |
Amount | $1,226,538 |
SEC Filing | Form 4 |
James W. McGill, a Director at Powell Industries, sold 6,600 shares of Common Stock on August 27, 2024, with transaction prices ranging from $183.22 to $188.46, representing an average price within specified ranges for each sale. The total sale amount was $1,226,538. Following these transactions, McGill directly owns 9,660 shares of Powell Industries. The sales were conducted in multiple transactions at prices within the reported ranges.
SEC Filing: POWELL INDUSTRIES INC [ POWL ] - Form 4 - Aug. 29, 2024
Reporter Name | Grandon Jonathan M. |
Relationship | Chief Administrative Officer |
Type | Sell |
Amount | $228,605 |
SEC Filing | Form 4 |
Jonathan M. Grandon, Chief Administrative Officer of Franklin Electric Co, sold 2,219 common stock shares on August 26, 2024, at a price of $103.022 per share, totaling $228,605. Following the transaction, Grandon directly owns 15,884 shares of the company, including 1,715 restricted shares vesting on 2/22/2027, 1,555 restricted shares vesting on 2/16/2026, 1,895 restricted shares vesting on 2/24/2025, and 10,719 shares owned outright.
SEC Filing: FRANKLIN ELECTRIC CO INC [ FELE ] - Form 4 - Aug. 26, 2024
Investors interested in stocks from the Manufacturing - Electronics sector have probably already heard of Powell Industries and Eaton . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Powell Industries and Eaton are sporting Zacks Ranks of #1 (Strong Buy) and #2 (Buy), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that POWL is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
POWL currently has a forward P/E ratio of 16.05, while ETN has a forward P/E of 28.01. We also note that POWL has a PEG ratio of 1.15. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. ETN currently has a PEG ratio of 2.34.
Another notable valuation metric for POWL is its P/B ratio of 5.29. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, ETN has a P/B of 6.20.
Based on these metrics and many more, POWL holds a Value grade of B, while ETN has a Value grade of C.
POWL stands above ETN thanks to its solid earnings outlook, and based on these valuation figures, we also feel that POWL is the superior value option right now.
Zacks Investment Research
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