Hammond Power Solutions
Design and manufacture of dry-type, custom power, and cast-resin transformers plus related electrical products (reactors, filters, enclosures); sold through electrical distributors, OEMs, and direct to industrial/data-center end users across North America (US, Mexico, Canada) and India. Revenue is unit-shipment + pricing driven, backlog-visible, and increasingly tied to hyperscale data-center buildout.
Earnings, margins, COGS & capex
HPS compounds off dry-type transformer demand, with growth inflecting hard in 2025-2026 as US/Mexico data-center and industrial capex drove record sales and a >90% backlog surge. Reported profitability is the tension: adjusted EPS and EBITDA rose strongly, but GAAP net earnings actually declined in both Q4 2025 and Q1 2026 despite record revenue, as tariffs, input costs, FX, and start-up/acquisition expenses compressed the bottom line. Cash conversion is weak in the growth phase — working capital and capex to add capacity absorbed most of operating cash flow.
Income statement — where each revenue dollar goes
% of revenueOf every $1 of revenue, ~70¢ is cost of goods and ~19¢ operating expense, leaving ~12¢ of operating profit (~7¢ net).
Revenue trend
Margins
Down from 32.8% FY2024 (and from 31.5% in Q1 2025) on tariffs and input-cost inflation; improved ~90 bps sequentially from 29.2% in Q4 2025 to 30.1% in Q1 2026
Holding double digits, but Q1 2026 operating earnings fell YoY (CAD 29.2M vs 37.5M) on cost pressure
Expanding YoY (Q1 adj. EBITDA CAD 41.0M vs 30.9M)
Compressing — GAAP net earnings fell YoY on higher costs, FX and tax
COGS structure
Cost of goods is dominated by raw materials — electrical (grain-oriented) steel, copper and aluminum windings, and insulation/resin — plus North American manufacturing labor. Commodity prices and US import tariffs are the principal margin swing factors; 2024-2026 gross-margin erosion is tariff- and metal-cost driven, partly offset by list-price increases.
Capex
CAD 35.6M FY2025 (~4.0% of sales), CAD 8.7M Q1 2026, weighted to capacity expansion including the new Mexico factory that began shipping in Q1 2026; capex intensity elevated versus historical ~2-3% as the company adds capacity to serve backlog.
Latest earnings
Record sales CAD 264.8M (+31.5%) with adjusted EPS CAD 2.08 (+29.7% YoY) generally viewed as ahead; however GAAP net earnings fell to CAD 19.6M from CAD 26.2M a year earlier, and basic EPS fell to CAD 1.64 from 2.20 — a soft reported bottom line masked by strong adjusted metrics
No explicit numeric 2026 guidance; management points to strong revenue visibility from backlog up 94.6% YoY and the newly added Mexico capacity, while flagging continued tariff/cost and FX headwinds
- Sales
- CAD 264.8M (+31.5% YoY)
- US & Mexico sales
- CAD 199.7M (+41.8%)
- Adjusted EBITDA
- CAD 41.0M (15.5% margin)
- Adjusted EPS
- CAD 2.08 (+29.7%)
- GAAP net earnings
- CAD 19.6M (down from 26.2M)
- Basic EPS
- CAD 1.64 (down from 2.20)
- Backlog
- +94.6% YoY; +4.1% vs Q4 2025
Growth drivers
- Hyperscale data-center power demand — custom power transformers for AI/cloud buildout, the single largest growth vector cited by management
- US electrification and grid/industrial capex + reshoring/nearshoring of manufacturing
- New Mexico plant capacity coming online (shipments began Q1 2026)
- Pricing actions offsetting tariff/commodity inflation
- AEG Power Solutions acquisition — adds industrial power electronics / mission-critical UPS, Europe+Asia footprint, ~CAD 326M of 2025 revenue
- India growth (+33.5% in Q1 2026 off a small base)
Bull & bear
A scarce, capacity-constrained supplier of the exact transformers the AI/data-center and electrification buildout needs, with record backlog, pricing power, and a fresh growth leg from AEG — still small enough to compound for years.
- Backlog up 94.6% YoY and 122% at year-end 2025 underwrites revenue well into 2026-2027 before new orders
- US & Mexico sales +41.8% in Q1 2026 show demand and share gains concentrated in the fastest-growing, tariff-protected market
- New Mexico plant adds capacity precisely as demand outruns supply — converts backlog to shipments and revenue
- Adjusted EBITDA margin expanded to 15.5% even under tariff/cost pressure, evidencing pricing power
- AEG diversifies HPS from a transformer pure-play into broader mission-critical power electronics (UPS, industrial), adding ~CAD 326M revenue and Europe/Asia reach
- Long structural runway: grid replacement, reshoring, and electrification are decade-length demand, not a single cycle
A cyclical industrial trading at a growth-stock multiple (~55x GAAP earnings) whose GAAP profits are already falling despite record sales — leaving little margin for a data-center capex pause, tariff shock, or a messy, debt-funded AEG integration.
- GAAP net earnings declined YoY in both Q4 2025 and Q1 2026 even as revenue hit records — the reported profit engine is stalling as adjusted metrics flatter the story
- Valuation is stretched: ~55x FY2025 GAAP EPS (~49x adjusted; ~61x trailing-twelve-month GAAP) and ~30x EV/adjusted EBITDA after a ~162% one-year run
- Gross margin has fallen ~250 bps from its 2024 peak; tariffs and copper/steel prices remain uncontrolled swing factors
- Free cash flow was negative in FY2025 — growth is being funded by working capital and now by new USD debt
- Order strength is levered to AI/data-center capex, which is inherently cyclical and could digest sharply after a multi-year boom
- AEG is a lower-margin, Europe/Asia-centric business bought all-cash for ~CAD 365M with fresh leverage — integration and margin-dilution risk on the first large cross-border deal
- Dual-class control limits outside-shareholder influence
What it is worth
Peer-relative multiples plus a reverse-DCF sanity check. At CAD 3.98B market cap (EV ~CAD 4.0B pre-AEG) on FY2025 GAAP EPS CAD 6.07 / adjusted EPS CAD 6.81, HPS trades at ~55x GAAP (~49x adjusted) FY2025 earnings — and ~61x on trailing-twelve-month GAAP EPS given the softer recent quarters — plus ~30x EV/adjusted-EBITDA (FY2025 adj. EBITDA ~CAD 133M): a growth multiple for an industrial. That is well above diversified peers (Eaton, Hubbell, ABB typically ~20-30x earnings), justified only if the data-center-driven ~20-30%+ revenue growth and margin recovery persist for several years.
AI/data-center capex digests, tariffs/metals keep gross margin sub-31%, AEG integration dilutes margins and adds leverage — GAAP earnings stay soft and the multiple de-rates toward peer ~20-25x, implying material downside from current levels.
Growth normalizes toward the low-to-mid teens as capacity catches up, margins stabilize in the low-30s gross, AEG is modestly accretive — the rich multiple compresses toward the mid-30s P/E and the stock roughly consolidates its re-rating.
Backlog converts, Mexico ramps, margins recover toward 32%+, and AEG is accretive — revenue compounds ~20-25% and the premium multiple is sustained or expands; meaningful upside from CAD ~334.
The multiple already discounts a durable AI/electrification supercycle and successful AEG integration; the reverse-DCF implies the market expects sustained ~20%+ top-line growth with gross margin recovering toward its 2024 (~32-33%) level. GAAP earnings currently falling YoY is the key disconnect the price is looking through.
SWOT
Strengths
- Pure-play leverage to the highest-growth pocket of electrical equipment — dry-type/custom transformers for data centers
- Record backlog (+94.6% YoY in Q1 2026; +122% at FY2025 year-end) giving multi-quarter revenue visibility
- Established North American manufacturing footprint (US, Canada, Mexico, India) with tariff-advantaged local production
- Demonstrated pricing power and adjusted-EBITDA margin expansion despite input inflation
- Founder-aligned dual-class control (Hammond family) with long operating track record and a rising dividend (quarterly CAD 0.275/share)
Weaknesses
- Reported (GAAP) net earnings declined YoY in Q4 2025 and Q1 2026 despite record sales — cost, tariff, FX and tax drag
- Gross margin down ~250 bps from 2024 peak on tariffs and metal costs
- Weak free-cash conversion during the growth phase (working-capital + capex absorb operating cash)
- Small absolute scale and single-product-family concentration versus diversified giants (Eaton, ABB, Schneider)
- Reports in CAD but sells heavily in USD — translation and transaction FX volatility
Opportunities
- AI/data-center power supercycle extending multi-year transformer demand
- AEG acquisition diversifies into industrial power electronics / mission-critical UPS and adds a Europe+Asia platform for cross-selling
- Reshoring of US manufacturing and grid-replacement capex
- Aftermarket, services, and higher-value custom/engineered products mix-up
- Capacity additions (Mexico) converting backlog into shipments and share gains
Threats
- Data-center/industrial capex is cyclical — an AI capex digestion or macro slowdown would hit orders and the rich multiple
- Tariff regime and copper/steel price swings directly compress margins
- Larger, better-capitalized competitors (Eaton, ABB, Schneider, GE Vernova, Hitachi Energy) expanding transformer capacity
- AEG integration and leverage risk — first large cross-border deal, funded with new USD debt, at a structurally lower-margin business
- Valuation risk: the stock re-rated ~162% in a year and prices in sustained hypergrowth
Moats, dependencies & bottlenecks
Moats
Engineering + custom-manufacturing capability for made-to-order power/dry-type transformers Custom/engineered units carry switching costs, qualification cycles, and lead-time advantages that commodity transformers lack
US/Mexico/Canada plants are tariff-advantaged and near data-center demand; capacity itself is a moat while the industry is supply-constrained
Distributor and OEM relationships + brand in dry-type transformers Long-standing channel positions with electrical distributors; erodes if giants prioritize the category
Short-to-medium A cyclical, not structural, moat — real while demand outstrips supply, evaporates if capacity floods in
Dependencies
copper, aluminum, resin/insulation Raw-material inputs Commodity price and tariff exposure is the main margin driver; GOES is a concentrated supply market (e.g. Cleveland-Cliffs in North America)
The incremental growth and multiple are levered to AI/cloud buildout continuing
Policy/regulatory Tariffs cut both ways — protect US-made volume but inflate imported input costs
Sells largely in USD, reports in CAD; translation and hedging affect reported earnings
AEG deal funded with up to USD 300M term debt + USD 150M revolver; leverage and rate exposure now matter
Advantages
- Focused pure-play exposure to the transformer demand wave, unlike diversified conglomerates
- Tariff-advantaged North American manufacturing near the demand
- Proven pricing power and rising adjusted margins
- Multi-quarter revenue visibility from a record backlog
- Founder-family stewardship and a growing dividend
Weaknesses
- Small scale versus Eaton/ABB/Schneider/GE Vernova with far deeper R&D and balance sheets
- Declining GAAP net earnings despite record sales — quality-of-earnings concern
- Commodity/tariff-driven gross-margin volatility
- Weak free-cash conversion in the growth phase
- FX translation drag; CAD reporting on USD-heavy sales
Bottlenecks
- Manufacturing capacity — demand has run ahead of plant output, gating revenue until new lines (Mexico) ramp
- Skilled labor and electrical-steel supply for transformer cores
- Working-capital intensity — inventory/receivables build to serve backlog constrains free cash
- Integration bandwidth to absorb AEG while scaling the core business
Top signals & trends
Top signals
Bullish while rising · The single best leading indicator of forward revenue; a rollover would signal the cycle turning
Improved ~90 bps into Q1 2026; sustained recovery toward 32%+ would validate pricing power
Widening gap (adjusted up, GAAP down) flags one-time/cost drag quality-of-earnings risk
First reported quarter with AEG (Q2/Q3 2026) will show accretion vs dilution and leverage
Converting backlog into shipments is the near-term growth unlock
AMZN/MSFT/GOOGL capex guidance is an upstream read on HPS order flow
Trends
High positive · Structural multi-year demand for custom power transformers; core to the bull case
Aging North American grid and load growth expand the addressable market
Favors HPS's US/Mexico footprint over imported equipment
Protects domestic volume but pressures input costs and gross margin
Negative (longer-term) · Eaton, ABB, Siemens, GE Vernova, Hitachi Energy all expanding transformer capacity, which could ease the shortage and pricing
Ecosystem & competitor graph
Suppliers feed the company; customers pull from it. Line thickness shows the strength of each tie (supply-chain dependency, customer earnings contribution). Hover to isolate a tie.
Largest North American producer of grain-oriented electrical steel used in transformer cores
US steel supplier for enclosures/structural steel inputs
Copper — key winding material driving COGS
Aluminum — alternative winding conductor and enclosure material
Hyperscale data-center operator — representative of the AI/cloud demand driving custom-transformer orders
Hyperscale data-center capex — upstream demand for data-center power equipment
Hyperscale data-center buildout end-demand
Major electrical distributor — a primary channel to industrial/commercial buyers
Electrical distribution channel (Graybar and Sonepar private; Rexel Euronext-listed) reselling HPS transformers to end users
Diversified electrical giant with dry-type/distribution transformers and data-center power; far larger scale and R&D
Grid/power transformer leader (larger power class) benefiting from the same electrification wave
Global electrification leader with transformer and power products; competes on breadth and scale
Energy-management giant with transformer/distribution and heavy data-center exposure
US electrical products including utility/grid solutions; adjacent competitor and channel peer
Data-center critical power/thermal — overlaps on data-center power infrastructure and, post-AEG, on UPS/power electronics
US electrical distribution/switchgear for industrial and energy end-markets; similar-scale North American peer
Private (Hitachi subsidiary); major global transformer maker expanding capacity — a key large-scale competitor
China-based dry-type/cast-resin transformer maker (context only, not a buy/own call) — a global low-cost competitor in HPS's core product