POWL Power-Up: From $80 to $250 and Still Charging Ahead!

At the beginning of 2024, I grabbed POWL shares for $80, and they’ve now shot up over three times to $250. I still think there’s plenty of upside left. In this article, I’ll break down why. If you’re into real-time trade alerts for my portfolio, check out the paid memberships.

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Business Overview

Powell Industries, Inc. (POWL) started in 1947 when William E. Powell set up shop in Houston, Texas, as a small supplier to local petrochemical facilities. Fast forward to today, and the company has grown into a global powerhouse, specializing in complex, integrated systems for distributing and controlling electrical energy. Powell’s product lineup includes switchgear, power control rooms, and cutting-edge systems for managing electrical power, serving industries like energy, utilities, rail, airports, and data centers.

With operations across North America, Central and South America, the Middle East, Europe, and Asia, Powell has proven it can adapt and thrive in changing markets. Even with challenges like inflation and fluctuating commodity prices, the company has delivered solid financial results—just look at its strong earnings, since Q3 2022, it has surpassed consensus.

By keeping its pricing in sync with costs, Powell has managed to protect its margins and stay competitive. Add to that a growing demand backlog, a healthy balance sheet, and zero long-term debt, and it’s clear Powell is set to keep growing, both organically and through strategic opportunities.

A Legacy of Innovation and Excellence

They’re the go-to partner for clients needing tailored electrical systems for critical projects. Powell knows its stuff, from traditional sectors like oil and gas to newer areas like data centers and renewable energy. What sets them apart is their ability to keep up with changing industry trends. As tech evolves, Powell has jumped on board with automation and digital tools to boost efficiency and offer more value. They’re all about creating integrated solutions, advanced monitoring tech, and thermal and EV systems to tackle the challenges of today’s power management needs.

Capitalizing on the AI Revolution

AI is transforming industries worldwide, and Powell is in a great spot to ride this wave. While everyone’s focused on big names like Nvidia (NVDA) and AMD (AMD) for their chips, the backbone of AI—the infrastructure—matters just as much. Power is a big bottleneck when it comes to scaling AI data centers, and Powell’s expertise in electrical distribution and control makes it a key player in the mix. With the explosion of AI tools like OpenAI’s ChatGPT, the need for reliable, high-performing electrical systems is only going to grow. Powell’s cutting-edge solutions keep the power flowing smoothly and efficiently, making them an essential partner for data centers and other AI-focused industries. Plus, with their reach in sectors like energy, petrochemicals, and nuclear, Powell is well-positioned to thrive as AI continues to expand.

Financial Resilience and Growth Potential

Powell’s solid financial footing is a big reason it’s such an attractive investment. The company has no long-term debt, which gives it the freedom to invest in growth and handle market ups and downs with ease. Its knack for improving margins and keeping costs in check has led to steady earnings growth, even when times are tough. The strong pipeline of orders across various sectors highlights the high demand for what Powell offers. Plus, the management team is doubling down on energy infrastructure upgrades—a key area expected to drive growth well into 2025 and beyond. They’re also focusing on industrial and commercial projects, which are seeing a strong comeback.

Competitive Advantages

Powell goes up against big names like Siemens (OTCPK:SIEGY) and Eaton (ETN), but it’s carved out a solid niche by staying focused on customization and innovation. Unlike the bigger players, Powell shines at creating tailored solutions that really meet its clients' specific needs. This customer-first mindset has earned it a reputation as a dependable, strategic partner. On top of that, Powell’s mix of revenue sources and broad geographic reach help it dodge the ups and downs of regional markets. With a strong push into fast-growing areas like data centers and renewable energy, Powell is primed to grab new opportunities while keeping a solid foothold in its traditional markets.

Tailwinds Driving Powell’s Success

Powell is in a great spot right now thanks to some big trends shaping the economy and its industry:

• Energy Transition and Infrastructure: The world’s shift to cleaner energy and updated electrical grids is a huge opportunity for Powell. Their know-how in energy distribution and control puts them right at the center of this movement.

• AI and Data Centers Booming: With AI taking off and data centers expanding like crazy, there’s a big need for cutting-edge electrical systems. Powell’s reliable power solutions make them a go-to partner for these fast-growing sectors.

• Oil and Gas Comeback: While renewable energy is the future, oil and gas aren’t going anywhere just yet. Powell’s solid footing in these traditional markets gives them a steady income stream.

• Rock-Solid Supply Chain: Powell has shown it can handle supply chain hiccups and rising costs. By smartly adjusting prices and staying efficient, they’ve kept their margins healthy and profits intact.

Strategic Initiatives for Future Growth

Powell is all about growing its market share by combining organic growth with smart investments. Here's the plan:

• Embracing Tech and Automation: Powell is putting resources into cutting-edge tech to improve its products and make operations smoother. This means better profit margins and happier customers.

• Expanding Globally: With a presence in different regions, Powell is ready to tap into global infrastructure growth. They're actively looking for ways to strengthen their foothold in fast-growing markets.

• Innovating New Products: Powell is staying ahead of the curve by focusing on fresh ideas. They're working on solutions to meet new demands in energy management and automation.

Valuation

The stock has skyrocketed from the mid-$20s in 2021/2022 to $250 today, but it still feels like a bargain. Sure, it's trading at 12x forward EBITDA, in line with the sector median, but when you factor in growth, it seems undervalued. The forward PEG is sitting at 1.6x, compared to the sector median of 1.9x.

Conclusion

Powell Industries, Inc. is a trailblazer with a knack for shaking things up and keeping customers delighted. With a lineup of cool products, solid financials, and smart moves, Powell is all set to thrive in a fast-changing world. Whether it’s riding the AI wave or powering up energy systems, Powell is leading the charge in game-changing industries.