Thermon Group: Navigating Headwinds with Operational Resilience and Secular Growth Tailwinds

Amid a volatile economic landscape, Thermon Group (NYSE: THR) is positioning itself as a standout play in industrial process heating solutions, leveraging structural shifts to diversify revenue streams and insulate itself from cyclical commodity swings. While near-term headwinds, such as delayed oil & gas capital expenditures, have dampened short-term growth, the company’s strategic pivot to high-margin recurring revenue and secular trends like decarbonization and digitization are laying the groundwork for sustained EPS expansion by fiscal 2026.

The Case for Operational Resilience: Diversification as a Shield

Thermon’s most critical structural shift is its deliberate pivot away from reliance on oil & gas markets. By targeting sectors like commercial real estate, food & beverage, and rail infrastructure, the company has already achieved its goal of deriving 70% of revenue from non-oil & gas end markets by fiscal 2026. This milestone, achieved ahead of schedule, underscores management’s ability to execute strategic initiatives.

The OPEX (Operational Expenditure) revenue stream, which includes maintenance and repair services, now accounts for 85% of total revenue, up from 75% a year ago. This recurring revenue model is less cyclical and carries higher margins, shielding Thermon from the volatility of large capital projects. As CEO Bruce Thames noted in Q1 2025 earnings, “Our diversification is not just about revenue mix—it’s about building a business that thrives in any macro environment.”

Secular Tailwinds: Decarbonization and Digitization Fuel Long-Term Growth

Thermon’s focus on decarbonization and digitization aligns with two of the most powerful secular trends reshaping global industries. The company’s advanced process heating solutions are critical to industries transitioning to sustainable energy, such as hydrogen production and renewable power infrastructure. Meanwhile, its digitization initiatives—such as IoT-enabled temperature monitoring systems—are expanding its addressable market and improving customer retention.

The $135 million Vapor Power acquisition, completed in fiscal 2025, has accelerated this transformation. Vapor Power’s expertise in rail and transit heating systems has opened new markets, while its backlog contributed directly to Thermon’s $235.6 million total backlog as of December 2024—a 48% year-over-year increase. This robust backlog positions the company to deliver consistent revenue growth even as large project spending lags.

Near-Term Headwinds vs. Long-Term Momentum

The 34% decline in large project revenue year-over-year reflects broader industry challenges, as oil & gas companies delay capital expenditures. However, Thermon’s organic revenue dropped just 5.3% excluding Vapor Power, thanks to OPEX growth. Management’s focus on operational efficiency—including manufacturing footprint consolidation and cost discipline—is projected to reduce expenses by $10 million annually by fiscal 2026.

Investors should note that fiscal 2025’s Adjusted EBITDA guidance ($112–$120 million) already factors in these headwinds, yet management remains confident in its ability to deliver. The company’s low net leverage (1.1x) and $141.8 million in liquidity provide ample flexibility to weather near-term turbulence and capitalize on M&A opportunities.

Why Now Is the Time to Act

While Thermon’s stock has underperformed over the past 52 weeks (-15.88%), its valuation is now attractively aligned with its growth trajectory. The upcoming May 22, 2025 earnings call will be pivotal: investors anticipate clarity on FY2026 guidance, which could include EPS targets reflecting the full impact of its diversification and margin expansion.

Conclusion: A Rare Opportunity in Industrial Resilience

Thermon Group is not just surviving—it’s evolving. By reorienting its business toward secular growth drivers and high-margin recurring revenue, it has built a moat against cyclical volatility. Even without explicit FY2026 EPS guidance yet, the company’s structural shifts, robust backlog, and balance sheet strength make it a compelling buy ahead of the May 22 earnings call. Investors seeking stability in a turbulent market should act now: the path to Thermon’s next growth phase is clear, and the payoff could be substantial.

Action Item: Add Thermon Group (THR) to your watchlist and prepare to act on May 22’s earnings call. This is a company primed to turn operational resilience into outsized EPS gains by 2026.