Hammond Power Solutions (TSX:HPS.A) is ripping higher in early Friday trading. Its stock soared as much as 33% to $190 per share this morning.
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Decent results but nothing exciting
The transformer and power solutions company announced good third quarter results. Sales increased 13.7% to $218 million. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) hit $30 million for a 13% EBITDA margin. It saw some margin compression from unabsorbed construction-related overhead expenses. Adjusted net earnings per share of $1.56 were up 7% year over year.
A huge backlog move propels Hammond Power higher
While these results are okay, it was the 27.7% increase in backlog that really propelled the stock. Management has noted for a few quarters that data centre quotation activity was strong. It finally saw an acceleration in data centres orders at the end of the quarter. These were substantial orders that made up 53% of the third quarter backlog.
The company has been building out more production capacity in Mexico this year. This capacity is set to come online by the end of the year. The timing could not be better. Due to the nature of some of these data centre projects, Hammond will be able to exceed its original anticipated production capacity to $1.2 billion of sales (up from $1 billion previously).
The Foolish takeaway
Hammond Power delivered a decent quarter of fiscal results. However, the big mover was rising demand for specialized data centre transformer products. Trading with a price-to-earnings ratio of 27, the market clearly has big future expectations for this gritty, blue-chip power solutions company.
