Shares of Powell Industries (POWL 0.95%) fell as much as 12.4% on Wednesday, before recovering to a 6.5% decline as of 1 p.m. ET.
Powell reported fiscal third-quarter earnings that missed on the top line, but managed to beat in terms of profits.
Yet while overall revenue may have disappointed, the underlying trajectory of the company appears better than it may look at first glance.
Electric utilities up, oil and petrochemical down
Powell is an engineering company that designs, manufactures, and services custom-engineered systems typically geared toward power control systems at large industrial complexes. These include oil and gas, petrochemical, electric utility, light rail traction, data center, and other commercial buildings.
The company's fiscal third quarter saw a slight 1% decline in revenue, which missed expectations, but a 3% increase relative to the prior quarter. Yet on the bright side, earnings per share of $3.96 increased 4%, beating expectations and helped out by an encouraging expansion in gross margins.
Powell's revenue growth may seem unexciting, given the recent need for more electricity to power artificial intelligence (AI) data centers, which is leading to a reacceleration in electricity demand in the U.S. In that light, there was a lot going on under the surface. Powell's electric utility segment was actually up a whopping 31%, so that fits in with the current trends. Additionally, commercial and light industrial revenue was up 18%.
However, Powell also has a significant oil and gas and petrochemical business, and those segments declined 8% and 36%, respectively.
Yet the company's overall booking trends seemed positive, as bookings grew 45% quarter over quarter, leading to a 7% sequential growth in backlog.
Image source: Getty Images.
Powell may be a sneaky play on electrification
Powell now trades at just a 16.7 multiple based on 2025 estimates, which ends next quarter. That may seem appropriate for a company with low growth, but as the electric utility segment makes up more of the business, the company may surprise to the upside. In the June quarter, the electric utility segment made up 26% of revenue, and commercial & industrial made up another 17%.
Therefore, if these segments can continue growing as they have, they could eventually become the major driver of the business in the years ahead.
