PWR Holdings rallies as analysts call sell-off 'overdone'
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The news: Shares in PWR Holdings rallied in morning trade on the ASX as analysts upgraded the automotive cooling products manufacturer, after a major sell-off in the stock on Wednesday.
The numbers: PWR shares were up 10.4% to $7.56 by 11am AEDT, having closed 24.6% lower in the previous session.
Bell Potter and Citi both upgraded their ratings on the stock to 'buy' after PWR said it expected first-half net profit after tax to be between $3.2 million and $3.7 million, a fall from $9.8 million in the previous corresponding period.
Bell Potter cut its target price from $9.75 to $8 and downgraded its revenue forecasts by 9% in each of FY25, FY26 and FY27.
Citi reduced its target price from $10.85 to $9.45 and lowered its NPAT forecasts by 9% to 34% across FY25, FY26 and FY27.
The context: Bell Potter analyst Chris Savage said PWR's trading update was "well below our expectations", calling it "an abnormally low H1 result". However, Savage noted the likelihood of a "much improved" second-half performance and FY26, and sees the share price reduction as a buying opportunity.
Likewise, Citi analysts said the share price reaction on Wednesday was "overdone" given the key drive of long-term growth for PWR, its aerospace and defence segment, continues to deliver strong growth.
Morningstar, which kept its valuation unchanged at $9, agreed that Wednesday's sell-off was an "overreaction", with the downturn in PWR's original equipment manufacturer business "not structural" as "key segments continue to perform strongly".
What they said: "Understandably, the loss of three niche [electric vehicle] programs, a softer aftermarket environment, and operating deleverage due to recent staff hires has dented investor optimism," Citi's analysts said.
"While we acknowledge there is increased uncertainty around revenue from secured and potential programs, we upgrade to buy and view [PWR] ... as an attractive buying opportunity to invest in a company with significant IP, a strong balance sheet, and offshore growth potential."
The sources: Citi research, Bell Potter research, Morningstar research
