Hubbell Earnings: Grid Modernization, Investment Dollars Underpin Our 12%-Plus Fair Value Increase

Narrow-moat-rated Hubbell HUBB reported supreme second-quarter results, although the market was apparently disappointed. Investment dollars from legislation and grid modernization efforts are key to our long-term thesis, and strong price realization and supply chain recovery remain tailwinds to Hubbell’s story. Given these strong trends, we’ve increased our fair value estimate by 12.5% to $322 per share. Management raised its guidance, but we think it’s still conservative. We have lifted our long-term expectation for transmission and distribution to high-single-digit sales growth. While we think the stock remains fairly valued, there could be continued upside risks to our valuation.

During the second quarter, net sales grew nearly 9% year on year to $1.37 billion, driven mostly by price. Hubbell continues to reap the benefits of its previous price increases, which more than offset the recent weakness in volume. Sticky prices point to Hubbell’s persistent pricing power with distributors. Its well-recognized brands, breadth of product offerings, and efficient customer service ensure customer loyalty. At the same time, deflation in select material costs (approximately 50% of its cost structure) has turned into a tailwind instead of a drag on profits. Adjusted operating margin rose 580 basis points to 22.4%, exhibiting continued sequential growth. We’ve raised our margin projections and value Hubbell about 20.5 times our 2024 adjusted EPS estimate of $15.80, which exceeds the high end of management’s revised earnings guidance.

Hubbell’s strategic acquisitions of PCX and Ripley Tools last year also contributed meaningfully to top-line growth and margins. Organic sales declined 4% in the electrical solutions business, but gains from the acquisitions offset the negative impact of lower volume and soft residential markets. We remain positive on management’s capital allocation decisions.