PWR Holdings Ltd (ASX: PWH) shares were on form on Tuesday and charged higher.
Investors were buying the ASX 300 stock after it announced a new contract win.
The advanced cooling products and solutions company revealed that its North American subsidiary, C&R Racing, has secured a US$5.5million (~A$8.9 million) order to supply advanced cooling solutions for a US government project.
Management advised that this order, which is scheduled for delivery in calendar year 2025, marks an important milestone in PWR's growth strategy within the Aerospace and Defence sector.
Broker response
Goldman Sachs agrees that this is a milestone moment for the ASX 300 stock and believes it could be the start of big things. It said:
While specific details are limited, given confidentiality, the magnitude of the initial contract represents c.6% of FY24 revenue (to be delivered in CY25) and is validation for PWH of R&D, prototype and professional accreditations achieved to-date.
We expect this announcement to be the first of a number of long-term opportunities in the A&D division with the emerging eVTOL space providing a material opportunity as it continues to progress towards regulatory approval and production capacity is built out to meet customer demand.
It also reminds investors that this side of the business is only new. Goldman adds:
It is important to consider that PWH only entered the A&D market in 2020 with the majority A&D revenue generated to-date from R&D and prototype work, with the transition from R&D to contracted production generally taking 3-4 years and contract lengths in A&D typically up to 5-10 years. In terms of materiality of contracted work going forward, we expect PWH to only announce contracted revenue that is likely to generate >A$5m in revenue per year.
Should you buy this ASX 300 stock?
In response to the news, the broker has retained its buy rating and $9.10 price target on its shares.
Based on its current share price of $7.62, this implies potential upside of 19.5% for investors over the next 12 months.
Commenting on its bullish view of the ASX 300 stock, the broker said:
PWR Holdings is a market-leading, founder-led business centered on the customized design, prototyping and production of advanced cooling products and solutions. With a deep history of product-led investment and engineering relationships with OEMs across all levels of high-performance motorsports, PWH are well positioned to leverage their expertise as they expand into aerospace and defense (A&D) and higher-volume OEM work.
Further, with management noting that demand continues to outstrip supply, PWH have plans in place to increase their Australia manufacturing footprint by +87% to c.29k sqm in FY26, vs FY22 levels, and improve automation. We consider PWH to have a runway to grow earnings long term, hence are Buy rated.
