On Tuesday, Bernstein initiated coverage on Hubbell (NYSE:HUBB) with an Outperform rating and set a price target of $535.00.
The firm highlighted Hubbell's 'attractive exposure' as an electrical equipment company with a significant portion of its sales derived from four key growth areas. These areas include the electrical grid, reshoring of manufacturing, data centers, and renewable energy, which together account for 80% of the company's sales.
The analyst from Bernstein predicts that Hubbell's revenue will grow at a compound annual growth rate (CAGR) of 7-8%, which is higher than the street's expectation of less than 5%. The firm anticipates this growth will be driven by a combination of factors, including increased wallet share through supplier consolidation, a shift in go-to-market strategy, and strategic bolt-on mergers and acquisitions.
The firm also forecasts an improvement in Hubbell's operating margins, projecting a 200 basis point increase to reach approximately 23% by around 2027. This is compared to the street's estimate of 22%. The margin growth is expected to stem from operational leverage and cost reductions in manufacturing.
Bernstein's analysis suggests that by 2025, Hubbell's earnings per share (EPS) could reach $18.59, which is 5% higher than the street's expectations. Over the next three years, the firm anticipates a CAGR of approximately 16% for the company's shares, potentially reaching $25/share, as opposed to the 7% CAGR projected by the street.
Finally, the analyst's valuation model points to a potential share price of $696, which would represent a 65% increase. However, after discounting back, the firm has set a price target of $535. This target implies a price-to-earnings (P/E) ratio of 29 times based on the firm's estimated 2025 earnings per share for Hubbell.
In other recent news, Hubbell Incorporated reported a strong third quarter in 2024, with a 14% year-over-year increase in adjusted earnings per share and a significant expansion in adjusted operating margins.
Despite difficulties in the Telecom (BCBA:TECO2m) sector and inventory normalization in utility distribution markets, the company has raised its full-year outlook, forecasting double-digit adjusted operating profit growth. The Utility Solutions segment showed particular promise, with an 18% increase in dollar margins, and is expected to continue growing due to grid modernization and electrification trends.
Hurricanes Helene and Milton disrupted operations but ultimately had a neutral net impact on Q3 revenues. However, storm-related orders are predicted to positively contribute to the fourth quarter. While the Telecom sector is projected to decline by 30% for the year, the Electrical Solutions segment saw organic growth at 3%, bolstered by strong performance in data centers and renewable markets.
Hubbell remains optimistic about its future, projecting above-average growth rates into 2025 as it addresses inventory challenges and capitalizes on-demand recovery.
These recent developments indicate that the company is successfully navigating sector-specific challenges while leveraging its market position and strategic initiatives.
InvestingPro Insights
Recent data from InvestingPro adds depth to Bernstein's bullish outlook on Hubbell (NYSE:HUBB). The company's market cap stands at $22.81 billion, reflecting its significant presence in the electrical equipment sector. Hubbell's revenue for the last twelve months as of Q3 2023 reached $5.64 billion, with a solid revenue growth of 7.5% over the same period. This aligns with Bernstein's projection of a 7-8% CAGR, surpassing street expectations.
InvestingPro Tips highlight Hubbell's strong financial health and shareholder-friendly policies. The company has maintained dividend payments for 54 consecutive years and has raised its dividend for 17 consecutive years, demonstrating a commitment to returning value to shareholders. This is further supported by a dividend yield of 1.24% and an impressive dividend growth of 17.86% over the last twelve months.
The stock's performance has been remarkable, with a 52.84% total return over the past year, significantly outpacing the market. This strong performance is backed by solid fundamentals, including an operating income margin of 19.01% for the last twelve months as of Q3 2023, which is on track with Bernstein's projected margin improvements.
Investors should note that Hubbell is trading at a P/E ratio of 30.42, which could be considered high. However, this valuation may be justified by the company's growth prospects in key areas such as the electrical grid, reshoring of manufacturing, data centers, and renewable energy, as mentioned in the Bernstein report.
For readers interested in a more comprehensive analysis, InvestingPro offers 14 additional tips for Hubbell, providing a deeper understanding of the company's potential and risks.
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