Powell Industries Misses Revenue, But Margin Magic Still Makes It a Buy

The market is a fickle beast, and sometimes it rewards the right moves while punishing the wrong misses. Take Powell Industries (POWL) today: the company delivered a Q2 earnings report with a $3.81 EPS beat—13% above estimates—but saw its stock drop 7.34% after hours because revenue of $278.6 million fell short of the $282.7 million FactSet consensus. But here’s the key: this is exactly the kind of dip that savvy investors should pounce on. Let me explain why.

The Numbers: A Margin Masterclass

Revenue might have missed by a whisker, but the real story is margin expansion. Gross profit jumped 33% year-over-year to $83.4 million, with the gross margin rate soaring to 29.9%—a 530 basis point improvement from a year ago. That’s not noise; that’s a structural shift in profitability. CFO Michael Metcalf didn’t mince words: “Operational efficiencies and project closeouts are driving this.”

The company’s focus on high-growth sectors is paying off:
- Electric Utilities revenue skyrocketed 48% to $70.3 million, fueled by projects like a U.S. Gulf Coast LNG facility.
- Commercial/Industrial sectors grew 16%, with data centers and mining investments pushing demand.

The only drag? The Petrochemical segment fell 13%, reflecting broader market softness. But let’s not overstate this: this sector now accounts for just 15.6% of total revenue, down from 20% a year ago. Powell is diversifying successfully.

The Backlog: A Cash Machine

The company’s $1.3 billion backlog remains intact—no slippage from Q1. This is cash already committed, waiting to be recognized as profit. And with a Houston facility expansion nearing completion, Powell is primed to accelerate project delivery. CEO Brett Cope emphasized that this will unlock $20–$40 million in new revenue by 2026 from products like light rail traction systems and data center solutions.

Why the Stock Sold Off—and Why to Buy Now

The revenue miss was small—just $4.1 million—but the market hates uncertainty. Investors also might be nervous about the Petrochemical slowdown and whether the backlog can grow. But here’s the truth:
- Margins are expanding, and that’s what drives valuations.
- The $389 million cash hoard gives Powell flexibility to invest or buy back shares (they spent $230 million on repurchases in Q1 alone).
- The PEG ratio of 0.13 screams undervalued—growth is outpacing valuation.

Look at that chart: the dip today brings POWL back to its 200-day moving average—a classic buying zone.

The Bottom Line: Buy on the Dip

Let’s cut to the chase: Powell Industries is executing. Yes, revenue stumbled at the margins, but the earnings beat, margin surge, and $1.3B backlog are all green lights. This isn’t a company in decline—it’s a profit machine with growth levers still to pull.

Action Alert: If you can stomach a bit of volatility, use this dip to add shares of POWL. The long-term story—electric utilities, data centers, and infrastructure—is too strong to ignore.

Final Score: BULLISH
POWL at $176.22 (post-dip): Buy below $180.

Disclosure: I hold no position in Powell Industries. This is not financial advice—do your own research.