Opinions
Andrey Omelchak
Hammond Power Solutions Inc.
HPS.A-T
BUY
Apr 01, 2025
Stock price when the opinion was issued
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Premium contentWe reiterate this electric transformer manufacturer, involved in data centre and cloud projects, as a TOP PICK. Recently reported earnings showed a 5% increase in year on year sales and a 17% increase in backlog of orders, which is great timing considering their new production factory is expected to open sooner than expected. It trades at 14x earnings, 3x book and supports a robust 31% ROE. We recommend trailing up the stop (from $70) to $80, looking to achieve $131 -- upside potential of 28%. Yield 1.1%
(Analysts’ price target is $148.25)Premium contentPremium contentPremium contentThe results were a bit weak on the growth margin side and the backlog decreased a bit. There is huge demand for new data centres and this is good for Hammond Power. He started accumulating it this year. There is a new plant opening up which will be very efficient for electrification demands.
Premium contentOur PAST TOP PICK with HPS.A has triggered its stop at $113. To remain disciplined, we recommend covering the position at this time. Along with our previous guidance, this will result in a net investment gain of 28%.
Scores 9 for fundamentals, and 4 for value. The street targets 24% upside. Q2 reported record revenue though gross profit margins dipped due to input costs. Could be vulnerable to rising raw materials costs and supply chain disruptions. They still lead in their industry with a dominant footprint. Data centre demand could be a driver.
Stock may have overshot last few years. Pullback is an opportunity to accumulate. Really needed if you believe in the electrification trend. Not as exposed to tariffs as other companies, as they have pricing power.