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

This is the author’s opinion only, not financial advice, and is intended for entertainment purposes only. The author holds a beneficial long position in Powell Industries Inc (POWL). The author receives no compensation for writing this article and has no business relationship with any of the companies mentioned.

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).