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U.S. Electrical Industry Analysis

UpdatedSep 28, 2022
DataAggregated Company Financials
Companies125
  • 7D-7.3%
  • 3M4.7%
  • 1Y-24.5%
  • YTD-28.0%

In the last week, the Electrical industry is down 7.3% with Eaton down the most at 5.7%. Meanwhile, Energy Vault Holdings actually outperformed within the industry, gaining 22% in the last week. The industry has fallen 25% in the last year. As for the next few years, earnings are expected to grow by 18% per annum.

Industry Valuation and Performance

Has the U.S. Electrical Industry valuation changed over the past few years?

DateMarket CapRevenueEarningsPEAbsolute PEPS
Wed, 28 Sep 2022US$268.7bUS$107.9bUS$8.4b19.3x31.9x2.5x
Fri, 26 Aug 2022US$305.9bUS$106.1bUS$8.5b22.3x36x2.9x
Sun, 24 Jul 2022US$272.6bUS$105.1bUS$7.5b17.6x36.2x2.6x
Tue, 21 Jun 2022US$253.1bUS$104.8bUS$7.5b17.6x33.7x2.4x
Thu, 19 May 2022US$274.1bUS$104.5bUS$7.6b18.4x36.2x2.6x
Sat, 16 Apr 2022US$295.6bUS$99.5bUS$7.5b20.5x39.5x3x
Mon, 14 Mar 2022US$303.4bUS$99.3bUS$7.6b21.8x39.8x3.1x
Wed, 09 Feb 2022US$304.9bUS$95.9bUS$8.2b21.4x37.2x3.2x
Fri, 07 Jan 2022US$338.4bUS$94.3bUS$7.5b25.4x45.1x3.6x
Sun, 05 Dec 2021US$351.1bUS$95.0bUS$7.8b23.7x44.9x3.7x
Tue, 02 Nov 2021US$346.4bUS$90.8bUS$8.5b23.9x40.7x3.8x
Thu, 30 Sep 2021US$304.4bUS$89.1bUS$8.0b23.8x38.1x3.4x
Sat, 28 Aug 2021US$328.1bUS$89.4bUS$7.9b23.9x41.6x3.7x
Sun, 04 Jul 2021US$312.0bUS$89.0bUS$7.9b24.5x39.6x3.5x
Wed, 07 Apr 2021US$284.7bUS$82.6bUS$6.9b27x41.1x3.4x
Sat, 09 Jan 2021US$251.5bUS$81.7bUS$6.0b29.1x42x3.1x
Fri, 02 Oct 2020US$201.1bUS$81.7bUS$5.9b24.3x33.9x2.5x
Mon, 06 Jul 2020US$171.1bUS$83.3bUS$6.1b21.1x28.2x2.1x
Thu, 09 Apr 2020US$136.3bUS$88.4bUS$7.2b15x18.9x1.5x
Wed, 01 Jan 2020US$186.3bUS$85.3bUS$7.9b21.5x23.5x2.2x
Sat, 05 Oct 2019US$164.7bUS$85.2bUS$8.4b17.6x19.7x1.9x
Price to Earnings Ratio

19.7x


Total Market Cap: US$164.7bTotal Earnings: US$8.4bTotal Revenue: US$85.2bTotal Market Cap vs Earnings and Revenue0%0%0%
U.S. Electrical Industry Price to Earnings3Y Average 34.5x202020212022
Current Industry PE
  • Investors are relatively neutral on the American Electrical industry at the moment, indicating that they anticipate long term growth rates to remain steady.
  • The industry is trading close to its 3-year average PE ratio of 34.5x.
  • The 3-year average PS ratio of 2.8x is higher than the industry's current PS ratio of 2.5x.
Past Earnings Growth
  • The earnings for companies in the Electrical industry have remained mostly flat over the last three years.
  • Meanwhile revenues for these companies have grown 8.2% per year.
  • This means that although more sales are being generated, either the cost of doing business or the level of investment back into businesses has increased and as a result, profits have held steady.

Industry Trends

Which industries have driven the changes within the U.S. Industrials industry?

US Market-5.79%
Industrials-6.09%
Electrical-7.27%
Heavy Electrical Equipment-3.41%
Electrical Components-7.34%
Industry PE
  • Investors are most optimistic about the Electrical Components industry, which is trading close to its 3-year average PE ratio of 33.2x.
    • Analysts are expecting annual earnings growth of 18.4%, which is lower than the prior year's growth of 27.4% per year.
Forecasted Growth
  • Analysts are most optimistic on the Heavy Electrical Equipment industry, expecting annual earnings growth of 24% over the next 5 years.
  • This is better than its past earnings decline of 8.6% per year.
  • In contrast, the Electrical Components industry is expected to see its earnings grow by 18% per year over the next few years.

Top Stock Gainers and Losers

Which companies have driven the market over the last 7 days?

CompanyLast Price7D1YValuation
NRGV Energy Vault HoldingsUS$5.4221.5%
+US$131.6m
-45.2%PS16.9x
AMPX Amprius TechnologiesUS$11.918.3%
+US$76.6m
n/aPS230.6x
FREY FREYR BatteryUS$13.653.9%
+US$59.5m
38.4%PB3.1x
SCWO 374WaterUS$3.057.4%
+US$26.6m
45.2%PS289.1x
SKYX SKYX PlatformsUS$3.718.5%
+US$23.5m
n/aPB20.2x
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Latest News

ETN

US$131.30

Eaton

7D

-5.7%

1Y

-14.7%
Sep 27

Eaton: Strong Near-Term And Long-Term Growth Tailwinds

Summary Improving supply chain challenges, a healthy backlog, and strong end market demand should support revenue growth in the near term. In the long term, ETN should benefit from the $370 bn in funding allocated by the U.S. government under the Inflation Reduction Act as well as secular growth tailwinds. The stock has outperformed since my last recommendation and I expect this outperformance to continue. Investment Thesis I last covered Eaton Corp. (ETN) in July and the company has outperformed the broader markets since then with its stock gaining mid single digit versus a mid single digit decline in S&P 500 (SPY). I expect the stock’s outperformance to continue. Eaton is experiencing strong demand in the commercial, industrial, data center, electrical, and utility end markets, which has led to increased orders in the last quarter. The increased orders and supply chain challenges have led to a record-level order backlog. With the supply chain constraints easing, the revenue growth is expected to improve sequentially in 2H FY22. The strong order backlog, improvement in supply chain issues, and healthy demand should support the revenue growth in 2H FY22 and FY23. In the long term, the company should benefit from the secular trend in digitization, electrification, and energy transition and the $370 bn in funding allocated by the U.S. government under the Inflation Reduction Act to deal with the climate crisis. Eaton’s Revenue Growth Prospects ETN is experiencing strong demand from its end markets, with significant strength in commercial, industrial, data center, residential, and electrical markets, benefiting the company's order book. However, due to the supply chain constraints present in the market, the execution of these orders got delayed, leading to the building of a record-level backlog at the end of Q2 FY22. The strong demand in Eaton’s electrical business led to a backlog growth of 74% Y/Y in the last quarter. Approximately 75% of Eaton’s business in the Electrical segment is project-based. In the Electrical Americas segment, the company experienced substantial growth in commercial, residential, and industrial markets, leading to 29% Y/Y growth in new orders. The end markets were up in the range of 18% to 39% Y/Y. The increase in new orders benefited the order backlog growth and the backlog grew 89% Y/Y and 20% sequentially. In the Electrical Global segment, all the regions experienced strong demand in data centers, commercial, and industrial markets, supporting order growth of 19% Y/Y and backlog growth of 38% Y/Y. In the Electrical segment, the order rate in the data center business was up 25% Y/Y. The orders related to the secular growth trends for the segment, which include digitization, energy transition, and electrification, have started to flow through the order book. In the Aerospace segment, orders increased 19% Y/Y and the backlog was up 12% Y/Y due to the strength in commercial aftermarket and commercial OEM businesses. In the commercial market, the improvement in both domestic and international travel markets bodes well for future growth. The increased defense spending in the U.S. and other countries across the world post the Ukraine war is also acting as a tailwind for the segment’s growth. After the acquisition of Cobham in 2021, the aerospace segment generates revenue from commercial and defense markets equally. In the commercial market, both aftermarket and OEM businesses are well below the pre-COVID levels, which indicates further recovery potential for Eaton’s sales as the market normalizes. Within the Vehicle segment, Eaton experienced strength in North America’s light vehicle markets and South America businesses last quarter, partially offset by the flat performance in Europe and the impact of COVID-related lockdowns in China. A sizeable portion of the Vehicle segment’s revenue comes from Chinese operations. With the reopening of the Chinese economy, the Vehicle segment’s revenue growth should improve in 2H FY22. In July, Eaton completed the acquisition of a 50% stake in Jiangsu Huineng Electric, which manufactures low-voltage circuit breakers in China for the renewable energy market. This will be Eaton's third electrical JV in China over the last eight months, allowing the company to expand in the region by offering a multi-tiered portfolio of products. This increases Eaton’s addressable market by about $17 bn, supporting the future growth of the company in the region.

RUN

US$30.24

Sunrun

7D

-12.1%

1Y

-29.6%

PLUG

US$21.85

Plug Power

7D

-16.0%

1Y

-18.6%
Sep 22

FREYR Battery: Not A Long-Term Buy Despite Strong Momentum

Summary FREYR Battery stock is showing good momentum. FREYR has recently received upbeat commentary from a Morgan Stanley analyst and has signed a major off-take agreement last month. But there is no moat in FREY stock in my opinion. FREYR Battery (FREY) stock is trading near its post-SPAC highs and is seeing good momentum despite the significant correction in the broader markets. The company recently got a price target boost from the prior $18 to $26 by Morgan Stanley (MS) analyst Adam Jones. The analyst also hiked his bull case price target for the company to $60 from the prior $34. Adam Jones highlighted on-shoring and the Inflation reduction Act which will incentivize EV and battery production domestically. He also cited a recent binding off-take agreement as a reason for turning more optimistic about the stock. Late last month, FREYR Battery signed a broad partnership with Japanese electric motor manufacturer Nidec (NJDCY). In it, FREYR and Nidec have agreed to convert and expand the previously announced 31 GWh conditional offtake agreement between them to a binding sales agreement under which FREYR will supply 38GWh of cells (with an estimated gross value of $3 billion +) from 2025 to 2030 with an option to upsize volumes to 50 GWh in that period. A binding sales agreement is usually helpful in securing project financing at favorable terms. FREYR and Nidec also agreed to form a joint venture to combine FREYR’s clean, next-generation battery cells with modules and packs into integrated downstream ESS solutions for industrial and utility-grade customers. With the transition to Electric Vehicles picking up, several players have emerged in the cell and battery manufacturing space. FREYR battery differentiates itself as being cleaner (less CO2 emission during its manufacturing) and an onshore manufacturer in the U.S. and Europe. Onshore or near-shore manufacturing has gained some traction in recent years given significant supply chain issues post-Covid which have impacted production. Having an on-shore or near-shore parts manufacturer lessens the risk of supply chain disruption. The company currently doesn’t have any significant revenues (for the current year it is expected to generate just $5.57 million in revenues according to consensus estimates) but over the next 3-4 years, as its battery manufacturing facilities go online, analysts are expecting significant ramp-up in revenues given its off-take agreements and the strong momentum in EV industry. While I don’t have a problem investing in the companies in pre-revenues or initial stages, I look for some kind of a moat whether it is technology, early mover advantage or industry structure to give me some sort of confidence in the company’s longer-term prospects. For example, I covered Li-Cycle (LICY) a few days back. It is also a play on the transition to EVs as it addresses the issue of Li shortage by recycling Lithium from used batteries. LICI is expected to see a significant ramp-up in revenues over the next couple of years. The one thing which I liked about Li-Cycle was its unique technology which increases the recovery rate of used Lithium and other rare metals from used batteries and leaves little wastage. FREYR, on the other hand, doesn’t own significantly differentiated technology. It has licensed 24M technology but there are other competitors and end-customers including Kyocera, GPSC, ITOCHU, Lucas TVS and Volkswagen (VWAGY) which license and use the same technology. So, there is little technology moat for the company. There is also no early mover advantage and the industry is fragmented with several bigger manufacturers like CATL, LG Chem, Panasonic, BYD (BYDDY), and Samsung SDI already in the market. Even in Europe, there are competitors like Northvolt. Further, the major prospective buyers are big automobile companies which have higher bargaining power and many of them are having the option to manufacture their own batteries in-house. So, this is a tough industry to be in. Also, while there is a lot of buzz around on-shoring or near-shoring parts suppliers, with covid-related disruptions waning and supply chain conditions improving, I don’t think this will be a top priority for long. In the longer term cost economics will prevail and since labor cost is much cheaper in Asia, manufacturers there might have an edge. Further, while the company is doing a good job in terms of lower CO2 emissions, it is not something that its competitors can’t achieve. If we think a few years ahead and assume the company is able to execute well and reach the target production capacity, its sales will ramp up significantly.

Sep 19

Emerson Electric: Synergized Portfolio And Solid Demand Drives Growth

Summary Emerson Electric Co. is experiencing a solid demand from all the end markets and it has record backlog orders. Emerson is trying to achieve a higher growth rate in the coming years by creating a diversified and synergized portfolio in coming years. After comparing the forward P/E ratio with the sector median of 15.40x, we can clearly say that Emerson Electric is undervalued. Investment Thesis Emerson Electric Co. (EMR) is a technology and engineering company. The company is experiencing strong demand from its end markets and has record backlog orders. The company is also trying to achieve a higher growth rate by making its portfolio more efficient by acquiring a business that can complement its current business. About Emerson Electric EMR is a technology and engineering company that designs and produces products and distributes services to offer innovative solutions to clients from global industrial, consumer, and commercial markets. The company operates its business through two segments: Automation Solutions and Commercial & Residential Solutions. The Automation Solutions segment provides process control software and systems, industrial valves and equipment, and measurement and analytical instrumentation. The Commercial & Residential Solutions segment provides solutions for residential and commercial heating and cooling systems, including reciprocating and scroll compressors, flow control devices & system protectors, and standard, programmable, & Wi-Fi thermostats. The company earns 64% of the total revenue from the Automation Solutions segment, while 36% is generated from the Commercial & Residential Solutions segment. It earns most of its revenue from USA customers as it generates 53% of total revenue from the USA. The company generates 18% of the total revenue from Europe, 12% from China, and 17% from other Asian, Middle East & African regions. Sales by Segment and Geography (Annual Report of EMR) The company sells its products to the nine end markets, which are as follows: oil & gas, residential, chemical, power, discrete & industrial, commercial, cold chain/refrigeration, refining, and life sciences & medical. The largest chunk, which is 17% of the total sales, comes from oil & gas. Sales and Earnings Trends Sales Trend (Seeking Alpha) As we can see in the above chart, the company's sales growth is flat. The revenue has grown 7.67% in FY2021. Over the last five years, the revenue did not grow much - from $15.26 billion in FY2017 to $18.24 billion in FY2021 resulting in a 5-year CAGR of 3.63%. I believe low sales growth shows that the company is facing a slower demand from the end markets. The company reported an EPS of $4.10 in FY2021, which is a 24.62% growth compared to the EPS of FY2020. I believe that, despite the slow revenue growth, the solid EPS growth indicates that the company's operations are becoming more efficient. The long-term EPS growth is not impressive either, as the 5-year CAGR of EPS is 9.2%. I think things are changing for the EMR as in the recent conference call, the management has stated that the company is experiencing a solid demand from all the end markets, and it has record backlog orders. The company is also experiencing a demand recovery from China after Covid-19. After considering all these factors, I think the company's organic sales growth might be strong in the coming years. The company is also acquiring new business to achieve an efficient and enhanced portfolio which can give a higher growth rate. Diversified and Efficient Portfolio Recently, the company's subsidiary AspenTech announced that it has entered into an agreement to acquire Micromine. The acquisition can help AspenTech in entering in metals and mining market. Micromine provides end-to-end mining software which offers solutions essential to each stage of the mining process, including assessment, exploration, development, planning, manufacturing, and optimization. I believe this acquisition could be a significant contributor to the solid growth of EMR in coming years as Micromine's software is used at more than 2,000 mining sites and gives EMR entry into Australia's Metals & Mining Software market. The company has sold its InSinkErator Business to Whirlpool Corporation. InSinkErator is a manufacturer of food waste disposers and instant hot water dispensers. The company has decided to sell the business of InSinkErator as it does not synergize with the other businesses of EMR. The company has sold InSinkErator to whirlpool for $3.0 billion, which is 18.1x EBITDA of InSinkErator. The effect of this transaction might transpire in the financials of FY2023. I believe this transaction might significantly impact the financials as it can boost the earnings by approximately $5.07 per share in the coming years. I think the company might distribute some part of it as a special dividend and use the remaining part to acquire the new business, improving the portfolio structure. Recently, the company has made a strategic investment in Spearix Technologies. EMR has decided to incorporate Spearix technology into its product line of industrial wireless mesh networks and related software products. I think the direct impact of this investment might not be seen in the short term as, currently, Spearix Technologies is in the early growth phase, but in the long-term, the impact might be significant as it can expand its IIoT capabilities and strengthen its position in IIoT wireless communication market. After considering all these factors, I believe the company is trying to achieve a higher growth rate in the coming years by creating a diversified and synergized portfolio in coming years. The factor that can significantly hinder this growth is the availability of raw materials and components. What is the Main Risk Faced by EMR? Availability of Raw Materials and Components

AME

US$111.81

AMETEK

7D

-5.9%

1Y

-12.1%

ENVX

US$18.17

Enovix

7D

-18.2%

1Y

-10.8%
Sep 07

Commercial Production Is A Game Changer At Enovix

Summary The next-generation battery producer has produced a series of breakthroughs on multiple dimensions like capacity, safety and speed of recharge. There is a beginning of commercial success and this can be a game changer. Given capacity constraints, the company focuses on higher-margin segments. Financial metrics are still of little relevance, the stock price is likely to rise and fall with news and sentiment. Enovix (ENVX) is a next-generation battery producer that is starting to get serious traction with serious customers. Its 3D-silicon anode technology claims to have solved the four problems associated with silicon anodes (see company website for a description and the excellent Q2/22 earnings deck for further technical details). The result is battery cells that have a number of advantages (again see the Q2/22 earnings deck for further technical details): Significantly higher energy density Increased safety (BreakFlow, see video) Fast charging times High-temperature tolerance Long cycle life Enabling whole new form factors Domestic production (China controls 80% of the market) Only minor changes in the standard manufacturing process required We are not here to debate these, which is more stuff for engineers. What we do notice is that there is the beginnings of commercial validation (see below), and there is also significant third party validation (see their Auggust 2022 Letter to Shareholders for details). Our investment thesis is simple, we think it's likely that at least some of these claims are factual, and given the explosion in demand for lithium ion batteries in the coming years this will likely make the company supply, rather than demand, constrained and enabling premium pricing. Commercial validation Again a very useful slide from the earnings deck listing all the recent progress on various dimensions. We urge investors to read the Letter to Shareholders where there are additional comments on these items, more especially on third-party validation of the advantages of their technology (but certainly not limited to that). ENVX Q2 earnings deck Here the most relevant part is commercialization: Smartwatch battery order 5/03/22 First commercial batteries shipped 6/21/22 During the Q2CC, management stressed the importance of that first commercial shipment: it's kind of a trigger for them when they see the company go commercial and so, that was the big milestone for this last quarter commercial product going out of the factory. And when they see that it's a trigger, it's a trigger for them and it makes them realize that this thing is going to go, and then everybody's worried about, maintaining a competitive advantage. And so you, you get into this competitive dynamic where, where people start to get a fear of missing out, because there's a limited amount of capacity and relative to the opportunity there Management also stated that they now have three mega-cap companies which they call strategic accounts, which are companies with a market capitalization in excess of $200B and multiple applications for Enovix batteries. They just won a fourth strategic account, one that paid the company $5M in service revenue (Q2CC): we completed the initial phases of our product development program in the second quarter with a fourth strategic account after shipping commercial sales from Fab-1 and recognize $5 million in revenue from this customer. The company shipped batteries to 10 different customers and 4 distributors (they recently refocused on Asian distribution), but few of these are commercial quantities yet. There is a $1.5B funnel of engaged opportunities and active designs and design wins: ENVX Q2 earnings deck And here are some of these design wins: ENVX Q2 earnings deck Is it a coincidence that this slide largely matches the slide below where companies and products are actually provided? What is also notable is that each of these companies chose a different product for the initial introduction, and this is a great showcase for the variety of form factors and market segments that are addressable for Enovix and the competitive advantage they provide. According to analyst Marc Cohodes who spoke to one of their strategic customers (Q2CC): One of them said that without the OVS battery, our product would not exist. Quantitative change can enable qualitative change if they are large enough and that seems to be the case with the higher energy density Enovix cells as they enable new features and form factors. Here are a number of examples based on comparing batteries in existing products with an Enovix alternative (Q2/22 earnings deck): ENVX Q2 earnings deck Management on the Q2CC: we're definitely seeing a mentality shift where these large companies are, are thinking about battery as being a strategic lever in their businesses. It can affect essentially everything that their, their products ultimately do in terms of performance, in terms of form factor, et cetera... one of these large said they want to try to move us across their entire product line as soon as possible right. So they're going to be probably pulling on us pretty hard US Army Then there is the US Army, which gave Enovix a follow-on contract on August 10 this year. This is a huge opportunity, a $350M market although that will take several years to materialize. The second phase is about validation of the safety, from the press release: Harrold Rust, Co-Founder, President and Chief Executive Officer of Enovix. “Soldiers in the field need reliable, lightweight and long-lasting batteries and we’re thrilled Enovix has been chosen to demonstrate the advantages of our domestically-manufactured technology.” “Safety is a top priority at Inventus Power and when we tested the Enovix battery cells with its BrakeFlow technology, the results were impressive,” said Chris Turner, CTO of Inventus Power. “Enovix batteries are the only next-gen, high energy density cells to pass our nail penetration test. We look forward to collaborating with the company on this program, to provide an even more resilient, high-energy battery to the U.S. Army.” ENVX Q2 earnings deck It is of course also an important advantage that Enovix is a domestic producer in a Lithium Ion battery market that is dominated by the Chinese (with 80% market share). EV market Two slides from the earnings deck are important here. The first shows that by far the largest segment is the EV battery segment. However, from a pricing point of view, it's not necessarily the most attractive one: ENVX Q2 earnings deck This, given the company's production capacity constraints, provides much of the logic as to why the company is concentrating on a variety of devices under the banner of mobile computing where pricing and margins are likely to be considerably better. It simply doesn't have the capacity to service a large-scale segment as EVs yet, and this likely won't happen for another couple of years: ENVX Q2 earnings deck

GWH

US$4.33

ESS Tech

7D

1.6%

1Y

-56.7%