AI has been all the rage over the past 12 to 18 months, with every company’s results presentation mentioning how they are working to leverage it and the potential game-changing impact AI could have on industries, jobs and society.
One AI application is in autonomous cars and trucks, which are already in operation in the US, mainly via electric vehicles (EVs). While the EV craze seems to have died down, or at least the adoption by consumers has, it seems fair to say the trend has slowed, but not the direction. All of these big global macro themes — AI, autonomous vehicles and EVs — are premised on various supporting underlying technologies and industries, from Nvidia chips to the data centres they run in and, of course, the electricity required to power it all.
It might be worth looking at a company that should be right in the slipstream of this surge in electricity demand over the next decade: the New York Stock Exchange-listed Hubbell.
Hubbell was founded in 1888 by American inventor and entrepreneur Harvey Hubbell II. After the rollout of electricity and the light bulb to towns and cities in the US, he recognised the commercial opportunities in this new burgeoning industry.
Hubbell today remains a leading manufacturer of utility and electrical solutions for the operation of critical infrastructure. The business operates two main segments, Hubbell Utility Solutions (HUS) and Hubbell Electrical Solutions (HES). Despite a market capitalisation of $23bn and being an S&P 500 index member, it may not be a stock with which FM investors are overly familiar.
HUS is the larger of the two divisions, with third-quarter revenues of $944m vs $559m for HES. This division focuses on the really big stuff involving electrical grids and the modernisation of grids to accommodate the electricity demand from the macro themes discussed earlier. The business supplies products for upgrading and building electrical grids and substations.
Large electricity utility companies on the generation side (either fossil fuel or renewable) and transmission companies are this division’s customers. Its portfolio of more than 70 industrial products contains the nuts and bolts (literally), safety equipment and monitoring sensors for servicing, maintaining and repairing utility-grade infrastructure across the US, Canada and Brazil.
While grid automation and controls have been a weak spot for the division recently, with the peaks and troughs of renewable energy and a multitude of new grid connections requiring ever more sophisticated grid management — as opposed to when a few coal or nuclear power plants powered the network — this segment is expected to improve over time. Operating margins in this division trend around the mid-20% range, with the third quarter recording an adjusted operating profit margin of 25.7%.
HES operates a bit further downstream of the HUS division, serving large commercial operators such as data centres and large-scale commercial property owners. However, similar to the HUS division, it focuses on the nuts and bolts of what customers need to build and maintain their on-site electrical infrastructure, supplying, among other things, electrical cabling, racks, monitors, plates, panels, boxes and DB boards. It offers a wide variety of industrial products servicing a multitude of end customers.
Margins in this division are lower than in the HUS division, closer to the 20% mark, with the adjusted operating profit margin for the third quarter at 20.8%.
Hubbell has guided 2025 earnings to come in at $18.10-$18.30 a share which, given the share price of $448, puts it on an earnings multiple of 25 for current year earnings.
The company has a long track record of paying dividends, with an unbroken payout since 1992 and increasing dividends over time. The current trailing 12-month yield is 1.27% with a 33% payout ratio.
Hubbell has an active share buyback programme with a goal of repurchasing $500m of stock over the next three years.
The business, however, has noted cost pressures and tariff-related impacts. So this is something to be mindful of as a risk to current and future earnings while the US and the world adjust to the Trump administration’s trade machinations.
With the rand/dollar exchange rate trading more days under R17/$ than above it in recent weeks, this is the time to consider buying rand hedge shares and taking advantage of the strong rand or weak dollar, whichever way you want to look at it. There is little point jumping into rand hedge stocks after the rand has one of its multiple blowouts against the dollar. One share of Hubbell ($448) at R19/$, which was where the exchange rate was in April 2025, would equate to a cost of R8,512. At the R17/$ exchange rate of today, that would be R7,616, a saving of R896 for South African investors just on the exchange rate conversion.
If you are looking for a picks-and-shovels business tied to the big macro trends of AI, cloud computing, EVs and autonomous vehicles, Hubbell might be a good fit, and the exchange rate is favourable at the moment.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.