ESCO: Record Orders, Data Center Tailwinds, Yet the Stock Sits 19% Off Its High
A Quarter That Delivered – and a Stock That Didn't
ESCO Technologies closed its fiscal Q3 with a book-to-bill of 1.21, record backlog of $1.54 billion, and adjusted EPS of $2.20, up 37.5% year-over-year. Management raised full-year guidance to $8.30–$8.40, a 38–39% increase from fiscal 2025. “All 3 segments delivered book-to-bill ratios over 100%, leading to a record backlog of $1.54 billion” — Christopher Tucker, Senior Vice President and CFO · 2026-08-06, CFO Chris Tucker summarized. Yet the shares sit 19% below a late-June high, having declined ~8% over the past 90 days. The disconnect tells the story: the company is firing on all cylinders while the market weighs near-term headwinds in its renewables business and the cost of the upcoming Megger acquisition.
The Hidden Data Center Exposure
The most striking development this quarter is the accelerating demand for EMI filters and shielded rooms for data centers. “We have a couple of good customers there ... they're in that, broadly speaking, data center space” — Bryan Sayler, President and CEO · 2026-08-06 said CEO Bryan Sayler. This is not a passing theme: Test segment orders jumped 42% year-over-year, with industrial shielding projects and electromagnetic interference filters leading the way. The company is also seeing a surge in condition monitoring orders for the grid. “we had a 67% increase in our condition monitoring business that was led largely by some pretty good-sized large, high-voltage cable monitoring orders” — Bryan Sayler, President and CEO · 2026-08-06. Both are durable demand drivers tied to data centers and grid modernization. The optionality here is significant — a niche position in a secular trend that few test equipment firms share.
It's important to remember that not every data center has a requirement for this kind of EMP protection. But any commercial data center that's going to house government data, utility systems, that sort of thing, those critical infrastructure, they tend to have this requirement. And we see it being embraced increasingly, and I think we're doing pretty well in terms of our market attainment.
Submarines and Grid: The Structural Tailwinds
The aerospace & defense segment benefited from a record Navy award for the remaining Block VI Virginia and Columbia-class submarines, reinforcing the submarine programs backlog. ESCO is already under contract for this content. Meanwhile, Doble continues to lead the utility business, with orders up 30% and condition monitoring a key driver. The company's order strength in condition monitoring has been building for quarters, as management noted in the prior call: “We are seeing really good demand characteristics ... it's in the double-digit growth category” — Bryan Sayler, President and CEO · 2026-05-08. The earlier data center exposure was also telegraphed: “we're starting we've seen kind of a return to, you know, regular orders from our kind of our EMP filter product line that supports, you know, some of the data centers and that sort of thing” — Bryan Sayler, President and CEO · 2026-02-05. This quarter's print confirms the narrative is becoming real.
Balance Sheet and Megger
The company is preparing to close the Megger acquisition in fiscal Q1 2027, with integration planning underway. Management expects the cost of debt to be around 6%, having locked in terms for Term Loan A and B, and executed a deal-contingent hedge. The balance sheet has been strengthened by strong cash generation. Effective net cash improved to -$73M from -$466M a year earlier, giving ample headroom. Yet the market's reaction suggests concern about near-term margin pressure in the NRG renewables business and the integration risk of a large deal. With a record backlog and a raised guide, the fundamental picture is arguably the strongest it has been in years — the stock's drawdown may be more about sentiment than substance.