Hubbell Lighting It Up With Pricing, But Sentiment On Electrification Plays Dimming

 

I had pretty mixed feelings on Hubbell (HUBB) back in August of 2021, as I liked the company’s leverage to electrification products, including grid modernization, but wasn’t so excited about the margins, valuation, or prospects for outperformance. Since then, the shares have lost close to 15% of their value, lagging the broader industrial sector, but not really doing substantially worse than peers/rivals like ABB (ABB), Eaton (ETN), or Schneider (OTCPK:SBGSY), though nVent (NVT) has done a fair bit better.

I like the sale of the commercial & industrial lighting business, and I think it’s a little premature to write off leverage to further short-cycle recovery, to say nothing of Hubbell’s leverage to further spending on grid modernization assisted by the infrastructure bill. On top of that, Hubbell has done better on pricing than I expected and is in relatively better shape than most with respect to operating leverage.

Valuation is still not compelling to me. The shares are a little below my long-term cash flow-based fair value, but a prospective return in the high single-digits is more “okay” than “compelling”. I would like this as industrial rally idea, but I could just as easily see these shares hitting the $150’s before rebounding as jumping back up above $190 in the near term.

 

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Hubbell Lighting It Up With Pricing, But Sentiment On Electrification Plays Dimming