Wolfe Research Sees Upside in Two Electrical Stocks Amid Strong Quarter

Electrical equipment stocks achieved remarkable growth during the second quarter of 2026, with an impressive acceleration in core growth to around 6%, marking the highest level since Q1 2023, according to Wolfe Research analyst Nigel Coe. The sector witnessed significant order growth, surging 19% and maintaining a book-to-bill ratio of 1.16x, indicating a growing cyclical trend.

Notably, AI-related end markets drove this growth, with Power Generation, Low Voltage Electrical, and Transmission & Distribution sectors expanding between 15-20%. Short-term momentum was also evident, with Construction & Mining Equipment and Aerospace & Defense industries showing strength. However, Building Products verticals experienced a decline of 3-4%, while Automotive and Agriculture sectors remained relatively flat.

Despite some volatility due to tariff refunds impacting certain companies, incremental margins remained stable at 29% quarter-over-quarter.

Wolfe Research maintains a Market Underweight rating for Electrical Equipment distributors but identifies particular short cycle stocks with substantial upward earnings revision potential. Among these, Gates Industrial Corporation plc (GTES) receives an Outperform rating with a price target of $33, suggesting a 19.3% upside potential.

The firm highlights broadening growth across the company's portfolio and confidence in attaining at least 23.5% EBITDA margin during the second half of 2026, with margins surpassing 24% in the following year, setting the stage for $2 earnings per share in fiscal 2027. Following its earnings announcement, the stock rose by 9%, but analysts believe there is still ample room for further growth.

Another stock highlighted is Dover Corporation (DOV), also rated Outperform with a price target of $267, representing a 29.2% upside. Wolfe Research expresses renewed confidence in Dover's trajectory toward $12 earnings per share in fiscal 2027, driven by order, sales, and margin momentum across the company's portfolio. The firm emphasizes management's indication of more aggressive capital allocation through mergers and acquisitions or share buybacks.

Analysts have revised their fiscal 2026 estimate upward to $10.71 and recommend purchasing the stock after its recent pullback, noting that it trades at approximately 16 times its estimated 2027 earnings, which appears undervalued considering its earnings growth potential.