Hubbell Earnings: Sandbagged Guidance Portends Further Upside Despite Material Valuation Raise

After reviewing narrow-moat Hubbell’s HUBB latest results, we materially raise our fair value estimate by 23% to $286 per share. Sales rose to $1.29 billion and grew 10% organically, while adjusted EPS of $3.61 represented 70% year-on-year growth.

Management’s revised top- and bottom-line guidance and the exceptionally strong first quarter were all reasons for our revised opinion. Yet, the primary reason we’re far more bullish is due to utility solutions’ margins, on the strength of exceptional transmission and distribution component volumes. In fact, sales grew 19% year on year organically.

While we don’t want to overweight any individual data point, we think this confirms our thesis about secular tailwinds from the global energy transition and the need to harden and maintain the grid. In fact, Hubbell’s incremental pricing actions are sticking, suggesting its moat on the utility solutions or “front of the meter” side may be even stronger than we’ve traditionally appreciated.

Further, Hubbell’s capacity investments are ramping as is its productivity, yet Hubbell still can’t ship more products and the backlog has not come down (though it’s flattening). This is highly unusual in this business because, excluding Aclara, this is a short-cycle business where orders are placed and immediately shipped. Hubbell now has a backlog of two to three quarters.

Consequently, we’re very bullish on Hubbell’s near-, medium-, and long-term outlook. In fact, we’ve ignored the guidance and model $13.84 of adjusted EPS for full-year 2023, or $0.34 over the top end of the range. We now value Hubbell at nearly 21 times our 2024 adjusted earnings estimate.