Powell (POWL)

Electrical energy control systems manufacturer Powell (NYSE:POWL) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 8.3% year on year to $298 million. Its GAAP profit of $4.22 per share was 12.2% above analysts’ consensus estimates.

Company Overview

Originally a metal-working shop supporting local petrochemical facilities, Powell (NYSE:POWL) has grown from a small Houston manufacturer to a global provider of electrical systems.

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

Competitors of Powell (NYSE:POWL) include Eaton Corporation (NYSE:ETN), Schneider Electric SE (OTC:SBGSY), and ABB Ltd (NYSE:ABB).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Powell’s 16.3% annualized revenue growth over the last five years was incredible. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Powell’s annualized revenue growth of 25.7% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

Powell also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Powell’s backlog reached $1.4 billion in the latest quarter and averaged 7.7% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies Powell was operating efficiently but raises questions about the health of its sales pipeline.

This quarter, Powell reported year-on-year revenue growth of 8.3%, and its $298 million of revenue exceeded Wall Street’s estimates by 1.8%.

Looking ahead, sell-side analysts expect revenue to grow 6.1% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Powell has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 23.7% gross margin over the last five years. That means Powell paid its suppliers a lot of money ($76.30 for every $100 in revenue) to run its business.

This quarter, Powell’s gross profit margin was 31.4%, marking a 2.1 percentage point increase from 29.2% in the same quarter last year. Powell’s full-year margin has also been trending up over the past 12 months, increasing by 2.4 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Powell has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.2%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Powell’s operating margin rose by 19.5 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q3, Powell generated an operating margin profit margin of 21.2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Powell’s EPS grew at an astounding 59.7% compounded annual growth rate over the last five years, higher than its 16.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Powell’s earnings to better understand the drivers of its performance. As we mentioned earlier, Powell’s operating margin was flat this quarter but expanded by 19.5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Powell, its two-year annual EPS growth of 81.9% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Powell reported EPS of $4.22, up from $3.77 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Powell’s full-year EPS of $14.85 to stay about the same.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Powell has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.5% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Powell’s margin expanded by 15.6 percentage points during that time. This is encouraging because it gives the company more optionality.

Powell broke even from a free cash flow perspective in Q3. This result was good as its margin was 4.7 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Powell’s five-year average ROIC was 14.5%, beating other industrials companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Powell is a profitable, well-capitalized company with $475.5 million of cash and no debt. This position is 12.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Powell blew past analysts’ EBITDA expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 4.1% to $335.01 immediately after reporting.

Updated: December 4, 2025 at 10:01 PM EST

Before deciding whether to buy Powell or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

There are multiple reasons why we think Powell is an elite industrials company. First of all, the company’s revenue growth was exceptional over the last five years. And while its projected EPS for the next year is lacking, its rising cash profitability gives it more optionality. On top of that, Powell’s expanding operating margin shows the business has become more efficient.

Powell’s P/E ratio based on the next 12 months is 21.2x. Scanning the industrials landscape today, Powell’s fundamentals clearly illustrate that it’s an elite business, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $267.26 on the company (compared to the current share price of $339.98).