RBC lowers price target on Hammond Power Solutions

RBC Capital Markets analyst Nelson Ng lowered his target on Hammond Power Solutions (Hammond Power Solutions Stock Quote, Chart, News, Analysts, Financials TSX:HPS.A) to $320.00 from $350.00, citing weaker sector valuations and moderating growth expectations despite stronger-than-expected third-quarter results.

On Nov. 2, Ng maintained his “Outperform” rating, saying demand from data centres and broader electrification trends continues to support the company’s outlook.

“Hammond posted exceptional Q3/26 results, but we believe the shares traded lower on the back of the second consecutive quarter of modest sequential backlog declines and the broader sector weakness,” Ng said.

Hammond reported record third-quarter revenue of $446-million, up 104.4% year-over-year, while Adjusted EBITDA increased 177.5% to $84-million, representing an 18.8% margin. Gross margin improved to 34.4%, reflecting stronger demand, increased production volumes and improved operating efficiency. The company also generated $76-million in operating cash flow during the quarter.

Ng noted that data centres now account for approximately 40% of Hammond’s revenue, making investment in AI infrastructure an increasingly important driver of demand for its transformers and other electrical equipment.“We remain positive on product demand driven by datacenters (now 40 per cent of revenues) and the broader electrification trends, with upside from AEG North American cross-selling opportunities,” he added.

Hammond’s acquisition of AEG Power Solutions contributed its first full quarter of results, expanding the company’s product offerings and providing opportunities to sell additional electrical equipment to existing North American customers.

CEO Adrian Thomas said strong customer demand and improved execution supported the record results.

“We delivered an outstanding quarter across every key financial measure, with record revenue, strong margin expansion and exceptional cash generation,” Thomas said.

However, Ng said investors remain concerned about the direction of Hammond’s order backlog. Although the Power Magnetics backlog was 61.1% higher than a year earlier, it declined modestly for the second consecutive quarter. Ng believes the sequential declines could signal slower year-over-year growth in 2027 and 2028, even as the company continues benefiting from substantial demand for electrical infrastructure.

The analyst said Hammond’s expanded manufacturing capacity and integration of AEG should provide additional growth opportunities, but weaker valuations across the sector have reduced the multiple he is willing to assign to the shares.

“Although we have raised our estimates, we have lowered our PT … to reflect a contraction in the broader sector valuations, and slower year-over-year growth rates in 2027/28E due to a modest year-to-date decline in the backlog,” Ng said.

Despite reducing his target, Ng remains positive on Hammond’s longer-term outlook, supported by data centre investment, grid modernization and opportunities to expand AEG’s business in North America.

-30-