Powell (POWL)

Electrical energy control systems manufacturer Powell (NYSE:POWL) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 9.2% year on year to $278.6 million. Its GAAP profit of $3.81 per share was 10.6% 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 sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Powell’s 13.7% annualized revenue growth over the last five years was exceptional. 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 34.8% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Powell’s revenue grew by 9.2% year on year to $278.6 million, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.5% 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.

Powell has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 22.1% gross margin over the last five years. Said differently, Powell had to pay a chunky $77.89 to its suppliers for every $100 in revenue.

In Q1, Powell produced a 29.9% gross profit margin, marking a 5.4 percentage point increase from 24.6% in the same quarter last year. Powell’s full-year margin has also been trending up over the past 12 months, increasing by 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 managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.2%. 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.

Analyzing the trend in its profitability, Powell’s operating margin rose by 17.7 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q1, Powell generated an operating profit margin of 21.1%, up 5.7 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

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 49.9% compounded annual growth rate over the last five years, higher than its 13.7% 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 expanded by 17.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses 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 149% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q1, Powell reported EPS at $3.81, up from $2.75 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 $14.23 to stay about the same.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Powell has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 9.6% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Powell’s margin dropped by 6.1 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Powell’s free cash flow clocked in at $4.07 million in Q1, equivalent to a 1.5% margin. The company’s cash profitability regressed as it was 4.8 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Powell has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.3%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Powell is a profitable, well-capitalized company with $389.3 million of cash and no debt. This position is 16.8% 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 happy its EPS outperformed Wall Street’s estimates. On the other hand, its revenue slightly missed. Overall, this print was mixed. The stock remained flat at $190 immediately following the results.

Updated: July 9, 2025 at 11:10 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Powell.

Powell possesses a number of positive attributes. First off, its revenue growth was exceptional over the last five years. And while its cash profitability fell over the last five years, its expanding operating margin shows the business has become more efficient. On top of that, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

Powell’s P/E ratio based on the next 12 months is 14.3x. Looking at the industrials landscape right now, Powell trades at a pretty interesting price. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $243.93 on the company (compared to the current share price of $211.94), implying they see 15.1% upside in buying Powell in the short term.