Powell Industries, Inc.’s POWL shares have lost 19.8% in the past month. Late last month, the company announced its cautious near-term outlook, with management acknowledging that its first-quarter fiscal 2025 (ending December 2024) will be seasonally slower.

Despite the recent decline in its share price, Powell’s shares have skyrocketed 163.3% in the past year compared with the industry’s 14.5% growth. The broader Zacks Industrial Products sector and the S&P 500 have climbed 9.6% and 27.4%, respectively, in the same period. The company has also outperformed other industry players like Eaton Corporation plc ETN and Franklin Electric Co., Inc. FELE, which have gained 41.7% and 1.5%, respectively, over the same time frame.

POWL Outperforms Industry, Sector & S&P 500

Image Source: Zacks Investment Research

The recent decline in POWL’s stock price led some investors to wonder whether to buy, sell or hold the stock. Let’s understand the company’s competency as an electrical equipment manufacturer to better analyze how to play the stock amid the recent price decline.

Factors Influencing POWL’s Performance

Investors can take confidence from the fact that Powell is witnessing strength across its key indicators. POWL’s solid top-line growth, combined with impressive growth in earnings per share (EPS), has been enabling it to maintain a competitive advantage in the industry. For instance, in fourth-quarter fiscal 2024 (ended September 2024), its revenues increased 32% to $275.1 million, while adjusted earnings of $3.77 per share surged 74% on a year-over-year basis. 

The strongest driver of Powell’s business at the moment is the persistent strength across its oil and gas, and petrochemical markets, which grew 23% and 112% year over year in the fiscal fourth quarter, respectively. Several favorable trends in oil and gas, and petrochemical markets hold promise for the company’s long-term growth. This includes growth in energy transition projects, such as biofuels, carbon capture and hydrogen. Also, significant project awards, supported by high investments in LNG, related gas processing and petrochemical processes, are acting as tailwinds.

Courtesy of its diversification efforts beyond the core oil, gas and petrochemical markets, the company has also enhanced its market share across the utility, data center, commercial and other industrial markets. Increasing demand for electrical power from data centers is creating opportunities for the company’s growth.

This has led to a strong backlog level, which was $1.3 billion while exiting the fiscal fourth quarter. Although new orders declined on a sequential basis, the metric totaled $267 million compared with $171 million in the year-ago quarter. Importantly, POWL’s new orders consisted of a healthy volume of small and medium-sized awards, which reflect its core competencies and well-balanced portfolio across diversified markets.

The company has also been undertaking its facility expansion project at the product factory in Houston. It plans to spend approximately $11 million on the expansion project by mid-fiscal 2025. The expansionary efforts will help Powell execute its current backlog and enhance its customer offerings across data centers, hydrogen, carbon capture and other transitional energy markets.

Amid this, the Zacks Consensus Estimate for POWL’s fiscal 2025 (ending September 2025) revenues is pegged at $1.1 billion, indicating 9.3% year-over-year growth. The consensus estimate for first-quarter fiscal 2025 revenues is $244.2 million, indicating year-over-year growth of 25.9%.

Better Returns Than Industry

Powell’s trailing 12-month return on equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 35.68%, much higher than the industry’s 10.24%, reflecting the company’s efficient use of shareholders’ funds.

Image Source: Zacks Investment Research

Return on assets is 17.35%, also ahead of the industry’s 5.74%, indicating that Powell has been utilizing its assets efficiently to generate returns.

Image Source: Zacks Investment Research

POWL’s Valuation

With a forward 12-month price-to-earnings ratio of 16.67X, which is well below the industry average of 25.05X, POWL stock presents an attractive valuation for investors. However, the stock is trading higher than its peer, EnerSys ENS.

Price-to-Earnings (Forward 12 Months)

Image Source: Zacks Investment Research

Estimate Trend

Earnings estimates for fiscal 2024 have increased 10.1% to $13.70 per share over the past 60 days while the estimates for fiscal 2025 have improved 11.9% to $14.81. The figures indicate year-over-year growth of 11.5% and 8.1% for fiscal 2024 and fiscal 2025, respectively. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Final Thoughts on POWL

Robust momentum across end markets, diversification efforts, solid backlog level and capacity expansions position Powell favorably for impressive 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 strong earnings projections. We believe that POWL stock is an ideal addition to investors' portfolios. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Eaton Corporation, PLC (ETN) : Free Stock Analysis Report

Franklin Electric Co., Inc. (FELE) : Free Stock Analysis Report

Enersys (ENS) : Free Stock Analysis Report

Powell Industries, Inc. (POWL) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research