Hammond Power Solutions: this analyst just raised his price target

Paradigm Capital analyst Razi Hasan raised his target on Hammond Power Solutions (Hammond Power Solutions Stock Quote, Chart, News, Analysts, Financials TSX:HPS.A) to $400 from $380 following stronger-than-expected third-quarter results, citing accelerating data centre demand, improving margins and increased manufacturing capacity.

On Nov. 1, Hasan maintained his “Buy” rating, raising his earnings forecasts for 2026 and 2027 after Hammond significantly exceeded revenue and profitability expectations.

The company reported record Q3 revenue of $446.3-million, up 104.4% year-over-year and ahead of Hasan’s $407-million estimate and consensus of $396-million. Adjusted EBITDA increased 177.5% to $84-million, substantially exceeding Hasan’s $63-million forecast and the Street’s $58-million estimate.

Hasan attributed the improvement to stronger U.S. demand for transformers used in data centres, higher selling prices, improved manufacturing productivity and the first full-quarter contribution from the acquisition of AEG Power Solutions.

Gross margin increased 430 basis points year-over-year to 34.4%, reflecting higher production volumes and a greater contribution from higher-margin products. Hasan said the results demonstrate Hammond’s ability to convert its substantial order backlog into revenue as manufacturing capacity expands. The company’s Power Magnetics backlog increased 61.1% year-over-year, although it declined 3.8% sequentially as production accelerated.

Despite the quarterly decline, Hasan said the backlog remains substantial and supports further capacity expansion.

“As such, we do not see the decline as a negative indicator and applaud management for pivoting to accelerate orders into revenue,” Hasan said.

The analyst noted that Hammond’s Monterrey 4 manufacturing facility in Mexico is now fully ramped up, allowing the company to complete more custom transformer orders. Additional production capacity is expected from a planned facility in Fort Worth, Texas, where Hammond intends to invest $50-million in equipment and commissioning. The facility is expected to begin operations in Q4 2027 and initially add $250-million in annual manufacturing capacity, potentially increasing to $400-million with additional investment and sustained demand.

Hasan believes the expansion will help address production constraints as electricity demand increases from data centres, grid modernization and broader electrification.

He also expects the AEG acquisition to support growth by expanding Hammond’s product offerings and geographic reach, allowing it to provide a wider range of electrical equipment and services.

Following the results, Hasan increased his fiscal 2026 revenue forecast to $1.48-billion from $1.41-billion and his Adjusted EBITDA estimate to $261.8-million from $220.6-million. For fiscal 2027, he raised his revenue forecast to $1.76-billion from $1.69-billion and his Adjusted EBITDA estimate to $300-million from $262.6-million.

Despite the stronger outlook, Hasan said the recent pullback in Hammond shares has created a buying opportunity.

“We view Friday’s share price pullback, driven primarily by weakness related to the AI trade, as creating an attractive entry point for investors,” he said.

Hammond trades at approximately 9.3 times estimated 2027 EV/Adjusted EBITDA, compared with roughly 17.5 times for larger-cap peers. Hasan applied a 17.5-times multiple to his revised 2027 Adjusted EBITDA forecast to arrive at his new $400 target.

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