Nicholas Mugalli
Institutional TMT & Macro Research, AI/Semiconductors/Policy
Power Solutions International has no recovery in sight after missing every number badly. Revenue was $128.6M versus $160.8M expected, EPS $0.36 versus $0.52, and EBITDA fell 47% to $13.9M. Gross margin dropped 680bps to 22.9%, deterioration that takes multiple cycles to rebuild. Guiding Q2 as generally consistent with Q1 signals the margin compression is not a one-quarter anomaly. After a 50% one-day drop, there is no obvious catalyst to catch this knife. x.com
Power Solutions International shows the AI data center tailwind story failing to reach the numbers. After management sold the AI tailwind, earnings showed revenue down 5%, net income down 62% and gross margin falling from 29.7% to 22.9%, echoing Eos Energy. Scaling industrial capacity is hard: ramp costs, shipment timing, qualification and operational lag all bite. More high-flyers in energy, photonics and glass substrates are likely to take the same hit. x.com
Power Solutions International's large gas and diesel gensets for prime power are a big opportunity that is not priced in. Results improved after a disastrous Q1, though gross-margin guidance of 25% is below historical levels and management could not explain the gap versus Generac. x.com
Power Solutions International looks cheap against its earnings, at 12x trailing and 11x next year's versus the roughly 19x industrial equipment makers usually get. Putting 19x on next year's estimated $3.26 a share, give or take 12%, gives fair value of about $54.51 to $69.37, with the stock 33% under the low end; a pullback level sits at $35.28. This is a levels-only read off reported earnings and revenue estimates, with no fundamental work. x.com
