Hammond Power Solutions: A Clean Energy Transformer Positioned for Long-Term Growth

In the race to decarbonize global energy systems, Hammond Power Solutions (HPS) has emerged as a critical player, leveraging its expertise in dry-type transformers to fuel the transition toward cleaner infrastructure. With a recent Outperform rating and $140 price target from National Bank of Canada (a 21.1% upside from its June 9, 2025, closing price of $115.20), the company is well-positioned to capitalize on the surging demand for energy transition technologies. This article examines HPS's strategic alignment with global decarbonization trends, its robust earnings momentum, and the structural tailwinds propelling its growth.

Strategic Alignment with Global Decarbonization

Hammond Power Solutions operates at the intersection of electrification and sustainability. As the world scrambles to modernize aging power grids and integrate renewable energy sources, transformers—critical components for transmitting and distributing electricity—have become linchpins of the energy transition. HPS's focus on custom transformers for solar, wind, and data center projects aligns directly with this demand.

The global green power transformer market is projected to grow at a compound annual growth rate (CAGR) of 6.9%, reaching $1.81 billion by 2030, driven by renewable energy integration and grid modernization. HPS's Q2 2025 results underscore its ability to thrive in this environment: despite margin pressures from rising input costs, the company achieved record sales of $224 million, a 13.8% year-over-year increase. This growth was fueled by strong demand in the U.S. and Canadian markets, particularly for large-scale projects in electric vehicle (EV) charging, data centers, and public infrastructure.

The company's strategic investments further reinforce its positioning. The new Monterrey, Mexico, manufacturing facility—expected to reduce production costs by 10-15%—is a testament to HPS's commitment to scaling capacity while maintaining cost efficiency. This expansion comes as North America and Europe accelerate grid upgrades to accommodate renewable energy and EV infrastructure, a trend the European Union's Green Deal and the U.S. Inflation Reduction Act are set to amplify.

Robust Earnings Momentum Amid Margin Challenges

While HPS's Q2 2025 gross margin dipped to 30.7% (down 210 basis points year-over-year), the company's adjusted EBITDA of $33 million (14.9% of sales) and year-to-date EBITDA growth of 24.6% highlight its operational resilience. These results, achieved despite inflationary pressures and under-absorbed overheads in new facilities, reflect disciplined pricing strategies and a shift toward high-margin custom products.

National Bank of Canada analysts note that near-term margin challenges are temporary, with expectations that price increases and operational efficiencies will restore margins by 2026. The firm's backlog, though down 8% from Q1 2025, remains 9% higher than at the end of 2024, signaling sustained demand for its products.

Capitalizing on the Energy Transition

HPS's sustainability initiatives are not just ESG-driven but strategic. The company has set ambitious targets to reduce carbon intensity by 13% and limit absolute emissions by 10% by 2026. Its 72% waste diversion rate and investments in energy-efficient technologies position it to meet evolving regulatory standards, such as the EU's Eco-design Directive Tier 2 and U.S. efficiency mandates for distribution transformers.

The firm's alignment with clean energy trends is further evidenced by its growing presence in India and the Asia-Pacific region, where renewable energy investments are surging. With 41.1% of the global green transformer market already in Asia-Pacific, HPS's expansion into this region could unlock new revenue streams.

Investment Thesis and Price Target

National Bank of Canada's $140 price target is anchored in HPS's long-term growth trajectory. The firm anticipates that the company's role in electrification—spanning EV infrastructure, data centers, and grid modernization—will drive sales and margin recovery. With a current price-to-earnings (P/E) ratio of 18.5x and a discounted valuation relative to its estimated fair value of $159, HPS offers a compelling risk-rebalance proposition for investors.

The broader transformer market, valued at $89.34 billion by 2030, provides a structural tailwind. As governments and corporations prioritize decarbonization, HPS's expertise in energy-efficient transformers and its focus on high-growth sectors position it to outperform peers.

Conclusion

Hammond Power Solutions is a rare combination of a resilient business model and a clear strategic vision for the energy transition. Its ability to navigate margin pressures while expanding into high-growth markets makes it an attractive investment. With the National Bank of Canada's $140 price target and the global transformer market's projected expansion, HPS is well-positioned to deliver outsized returns for investors aligned with the clean energy revolution.