Powell Industries is Wednesday's IBD Stock Of The Day as the supplier of electric power distribution and control systems enjoys a period of supercharged demand. POWL stock, after surging into a buy zone on Tuesday, kept rising Wednesday.
LNG, Data Centers Drive Growth
Powell Industries, part of the Russell 2000 index of small-cap stocks, is based in Houston and has a market capitalization of $2.6 billion.
On April 30, Powell reported fiscal second-quarter earnings of $2.75 a share, almost triple the year-ago result and nearly $1 ahead of estimates. Revenue powered up 49% to $255.1 million.
Revenue growth was "driven mainly by strong performance from our largest markets, oil and gas and petrochemical, which grew 66% and 93%, respectively," CEO Brett Cope said on the May 1 earnings call. Sales in the commercial and other industrial category grew 57%, "driven by our growing presence in the data center market."
Data-Center Business Small But Growing
The data center business is still a relatively small part of sales. Through the first half of the fiscal year, sales to the oil-and-gas and petrochemical industries accounted for 59% of revenue, up from 52% in 2023. Sales to electric utilities make up another 20% of revenue. The commercial and other industrial category, which includes data-center sales, accounts for 13% of revenue this year.
CEO Cope said that sales to data centers have primarily involved "the outside connection of the data center to the grid." But the company sees potential to penetrate "the four walls of the data center."
As data centers grow in scales and sophistication, they'll require companies like Powell to build customized and fully integrated solutions to ensure reliability. "We are prepared for this future and are building relationships with both hyperscalers as well as co-locators," Cope said.
Powell said its backlog, which more than doubled to $1.3 billion in 2023, held steady in Q2. That provided the visibility for CFO Michael Metcalf to predict that "this strong financial performance can be sustained throughout fiscal 2024 and into fiscal 2025."
Still, Cope noted on the Jan. 31 earnings call that about 25% to 30% of the backlog was related to LNG (liquefied natural gas) projects. Some portion of that could get tied up while the Biden administration's temporary pause in approval of new LNG export permits remains in effect.
POWL Stock
POWL rose 3.6% to 194.69 in Wednesday afternoon stock market action, after surging 13.8% to 187.95 on Tuesday. Tuesday's move lifted Powell past a 183.49 buy point from a cup-with-handle base. Shares are now extended.
However, even before Powell crested its handle buy point, the electrical power equipment stock flashed an early entry. That came as POWL broke above the trend line sloping down from its 183.49 handle high.
Meanwhile, Powell's Relative Strength line, the blue line in IBD charts that tracks a stock's progress vs. the S&P 500, has broken out to a 10-year high.
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