Why Powell Industries Surged, Then Plunged on Wednesday

Shares of electrical power control station designer and manufacturer Powell Industries (NASDAQ: POWL) initially surged on Wednesday, only to fall again, ending up down 10.3% as of 1:13 PM EDT.

Powell reported fiscal fourth quarter earnings last night that actually beat expectations and showed nice growth, spurring the initial surge in the stock; however, it appears as the underlying order intake was softer than expected, and down on a quarterly basis, leading to the reversal.

Powell's traditional end-markets were in Oil and Gas and Petrochemicals, but it's now becoming a player in the Electric Utility markets for the AI data center buildout, so investors may want to look at this stock on the pullback.

Powell beats, but orders bounce lower

In the September quarter, which marks the end of Powell's fiscal year, revenue grew 8.4% to $298 million, with earnings per share growing 11.9% to $4.22. Those numbers beat expectations, continuing Powell's solid growth shown over the past couple of years.

However, some underlying key performance indicators (KPIs) were a bit softer. New orders were $271 million, which was up just 1% from the year-ago quarter, but down 25% from the prior quarter. That led to total backlog of $1.4 billion, up 3% year-over-year but down 2% quarter-over-quarter.

Image source: Getty Images.

Time to worry, or time to pounce?

Orders can be uneven in any business that serves large project build-outs. Powell also manufactures power control systems for various end markets, so movement within different segments can lead to significant fluctuations. For instance, management elaborated that the Petrochemical segment had lower orders year-over-year, while Oil and Gas, Electric Utility, and the Light Rail Traction Power segments all saw increases.

Powell's largest segment by revenue is still Oil and Gas, at 37% of revenues in the year that just ended. However, the Electric Utility segment, which is leveraged to the power boom due to the AI data center buildout, surged 50% in the last year to reach 25% of revenues.

Management noted activity in the utility segment remains strong, so as that segment makes up a larger portion of the business going forward, Powell should continue to see solid growth.

It appears Wall Street analysts aren't predicting much growth in the year ahead at this point. But Powell has a great balance sheet, with $433 million in cash and no debt. For those willing to bet the order weakness is due to mere volatility and not any impending decline in the utility/data center build-out, this pullback looks like a good opportunity, with shares now trading back to just 20 times earnings.

Billy Duberstein and/or his clients have positions in Powell Industries. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.