Powell Industries: Rooted in The Oil Boom, Ready For The AI Revolution

Disclosure: The author holds a beneficial long position in Powell Industries Inc. (NASDAQ: POWL). This article is provided for informational and entertainment purposes only and does not constitute financial advice. The views expressed here represent the author’s personal opinion. The author receives no compensation for this article and has no business relationship with the company mentioned. Please see the full "Legal Information and Disclosures" section below.

With Journey Medical Corporation and Hermès International, I recently discussed two picks from my Innovation & Freedom Portfolio (external link: Snowball Analytics). Powell Industries Inc. (POWL) has been in my portfolio since inception, and my initial position in Powell is now up 48%. I added to the position yesterday as Powell will report its first quarter 2025 results after the market closes today.

Headquartered in Houston, Texas, Powell has its roots in America's post-war oil boom. William E. Powell founded the company in 1947 as a metal fabrication shop to supply equipment for local petrochemical plants. With the increasing use of electrical technology in oil exploration, Powell specialized in power distribution solutions and became an expert in safe, high performance power distribution systems. Today, Powell is a leader in power distribution solutions for the oil and gas, utility, petrochemical and heavy manufacturing industries, where reliable and safe power transmission is critical to 24/7 operations. The company also has a long history of designing custom products, making it a trusted choice for large-scale projects where precision and reliability are critical, especially in complex systems.

Powell Industries delivered revenue growth of 44.8% in FY2024, although this momentum slowed in the fourth quarter with revenue growth of 31.8%. However, this slowdown could also be influenced by seasonal factors, as revenue growth in the fourth quarter of FY2023 was also "only" 28.3%, but peaked at 52.9% in the first quarter of FY2024. In particular, the Oil & Gas and Power segments experienced slower growth, while the Petrochemical and Commercial segments continued to grow strongly. With a strong backlog of approximately $1.3 billion and a book-to-bill ratio of approximately 1, the sales outlook remains bright. In line with this growth, Powell is also investing in capacity expansion and has acquired nine acres of land near its Houston headquarters in July 2024 "to help further facilitate the execution of our current backlog as well as planning for modest volume growth looking forward". Through efficient project execution and increasing volumes, the company achieved a significant increase in its EBITDA margin from 10.2% in 2023 to 18.3% in 2024. After a strong rally, the stock is down more than 30% from its all-time high of around $364 in November 2024 and currently looks cheap with a forward P/E of around 17.

I believe Powell Industries is poised to benefit from three megatrends: AI data centers are the fuel refineries of the emerging next industrial revolution, and like oil-age refineries, they consume large amounts of electricity. Robotics and automation could accelerate the reshoring of manufacturing, leading to new electricity-intensive manufacturing capacity on American soil. At the same time, America's coming nuclear energy boom could reshape America's electricity infrastructure.

While Powell may not be directly in the spotlight of any of these megatrends, they all require the kind of sophisticated power distribution solutions that Powell provides. As a result, I believe the company is in pole position to benefit over the next few years. However, some of these expectations may still be priced in, so a miss on sales and earnings expectations could put pressure on the stock again. I am optimistic and look forward to the financial results and guidance that Powell will present this afternoon.

Follow me on X for frequent updates (@chaotropy).

Legal Information and Disclosures

General Disclaimer & No Financial Advice: The content of this article is for informational, educational, and entertainment purposes only. It represents the personal opinions of the author as of the date of publication and may change without notice. The author is not a registered investment advisor or financial analyst. This content is not intended to be, and shall not be construed as, financial, legal, tax, or investment advice. It does not constitute a personal recommendation or an assessment of suitability for any specific investor. Readers should conduct their own independent due diligence and consult with a certified financial professional before making any investment decisions.

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Disclosure of Interest: The author holds a beneficial long position in the securities of Powell Industries Inc. (NASDAQ: POWL). The author reserves the right to buy or sell these securities at any time without further notice. The author receives no direct compensation for the production of this content and maintains no business relationship with the companies mentioned.

Forward-Looking Statements & Risk: This article contains forward-looking statements regarding product adoption, technological trends, and market potential. These statements are predictions based on current expectations and are subject to significant risks and uncertainties. Investing in technology and growth stocks is speculative, subject to rapid change and competition, and involves a risk of loss. Past performance is not indicative of future results.

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