It’s time to buy Hammond Power, this analyst says

Paradigm Capital analyst Razi Hasan maintained his “Buy” rating and $380.00 target on Hammond Power Solutions (Hammond Power Solutions Stock Quote, Chart, News, Analysts, Financials TSX:HPS.A), saying the recent pullback in its shares presents a buying opportunity ahead of third-quarter results.

Hasan said the company’s exposure to data centre construction, electrical grid modernization and its recent acquisition of AEG Power Solutions support a strong growth outlook.

“We view Hammond Power Solutions at the convergence of electrification and digital infrastructure transformation,” Hasan said in his Oct. 23 report. “The company stands to benefit from the surge of capital spending from data centre customers for HPS’ mission critical offering of dry-type transformers.”

Hammond is scheduled to report Q3 results after markets close Oct. 29. Hasan expects revenue of $406.9-million, up 86.4% year-over-year, compared with consensus expectations of $396.2-million. The forecast includes contributions from AEG, which was not part of Hammond a year earlier. He forecasts Adjusted EBITDA of $62.6-million, above consensus of $57.7-million, and adjusted EPS of $3.04, compared with the Street’s $2.90 estimate.

Hasan said Hammond’s recent share price weakness reflects broader investor concerns about AI-related stocks rather than deteriorating business fundamentals.

“Hammond’s share price has pulled back in recent weeks as the company has been unjustly lumped in with the overall AI fueled sell-off,” he said. “While we acknowledge a major catalyst for the company includes the data centre buildout, we remind investors the buildout is still in its infancy as structural demand is up against tight manufacturing capacity.”

The analyst noted that industry forecasts point to data centre spending growing at more than 20% annually through the end of the decade, before moderating to 10% to 15% by 2035.

Hasan also dismissed concerns about Hammond’s recent sequential backlog decline. Although backlog fell 6.9% from the previous quarter, it remained 96.9% higher year-over-year. “In our opinion, it demonstrates the company’s ability to execute on its expanded capacity,” Hasan said, pointing to increased production at its Monterrey facility in Mexico.

Hammond reported record Q2 revenue of $324.8-million, up 44.7% year-over-year, as additional manufacturing capacity helped convert orders into sales.

The company is continuing to expand production, including a planned $50-million investment in a leased facility in Fort Worth, Texas. Hasan said the new plant is expected to provide approximately $250-million in additional annual production capacity, potentially increasing to $450-million over time. The facility is expected to begin operations in Q4 2027 and could eventually lift Hammond’s total capacity to approximately $1.6-billion to $1.7-billion.

Hasan argued that Hammond also could have upside from investment in aging electrical infrastructure, with more than 70% of existing power transformers over 25 years old.

“Outside of data centres, the company also stands to benefit from grid modernization related to aging infrastructure,” he said.

He said that the AEG Power Solutions acquisition expands Hammond’s geographic reach and product offerings while providing a more stable recurring revenue stream.

On valuation, Hasan said Hammond now trades at approximately 10 times estimated 2027 EV/Adjusted EBITDA, down from nearly 18 times at its June peak. That compares with a peer group average of approximately 17.5 times.

“We view the recent share price pullback, driven primarily by weakness in the AI trade, as an attractive entry point,” Hasan said.

His $380.00 target applies a 17.5-times multiple to his revised fiscal 2027 Adjusted EBITDA estimate.

Hasan expects Hammond to generate Adjusted EBITDA of $220.6-million on revenue of $1.41-billion in fiscal 2026, improving to Adjusted EBITDA of $262.6-million on revenue of $1.69-billion in fiscal 2027.

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