PWR Holdings shares tumble 25% – But analysts say buy the dip

PWR Holdings (ASX: PWH) shares plummeted 24.5% on Wednesday after the automotive cooling products manufacturer cut its first-half FY25 earnings guidance due to cancelled electric vehicle programs and higher-than-expected production costs.

By the numbers: PWR expects first-half FY25 net profit after tax to fall between $3.2 million and $3.7 million. At the midpoint ($3.45 million), this marks a 64% drop compared to the same period last year (1H24: $9.8 million). For context, Citi had forecasted PWR's first-half FY25 net profit at $11 million.

Market impact: PWR shares opened 10.3% lower but closed the session with a steep 24.5% loss. Trading activity surged, with 3.75 million shares changing hands — 1,410% above the stock's 20-day average volume. Year-to-date, PWR shares have dropped 30%, hitting their lowest level since July 2022.

PWR also experienced a single-day dip of 15.7% after reporting its FY24 results on 16 August. The result fell short of expectations, with revenue momentum slowing and the medium-term outlook impacted by increased investments. The stock never returned to pre-FY24 result levels.

PWR five-year price chart (Source: Market Index)

Analyst takeaways: Citi analysts upgraded the stock to a Buy on Thursday, viewing PWH as an attractive investment opportunity trading at approximately 24x FY26 price-to-earnings, citing the company's significant intellectual property, strong balance sheet, and offshore growth potential.

While commenting on the trading update, the analysts acknowledged the factors that have dented investor optimism: The loss of three niche EV programs, a softer aftermarket environment, and operating deleverage from recent staff hires. However, they believe the share price reaction is overdone, particularly given that the key long-term growth driver (aerospace and defense) continues to deliver robust growth of 67%.

The trading update triggered significant downward earnings revisions, including:

• First-half FY25 EBITA and NPAT cut by 47% and 66% respectively, to $12 million and $4 million

• FY25 EBITDA and NPAT cut by 25% and 34% respectively, to $36 and $16 million

• FY26-27 EBITDA and NPAT expectations also eased by 7-11%

Several analysts maintained their optimistic stance while adjusting target prices:

• Bell Potter upgraded its rating to Buy from Hold, lowering the target price to $8.00 from $9.75, citing favorable valuation and expected rebound in the second half of 2025 and strong FY26 trajectory

• UBS retained a Neutral rating, cutting the target price to $7.50 from $10.20, noting that potential earnings volatility risks outweigh the current valuation appeal

• E&P maintained a Positive rating, reducing the target price to $8.74 from $11.43, suggesting that while the earnings downgrade highlights near-term pressure, it does not compromise the company's motorsports fundamentals