Methode Electronics: The Data Center Reinvention Takes Hold
After years of EV headwinds and a 71% drawdown, MEI's pivot to hyperscale power distribution is finally showing — but the market has already repriced the story.
MEI · Earnings Call · 2026-06-25
From 'Fix It' to 'Growth': The Data Center Inflection
Methode Electronics (MEI) reported fiscal 2026 fourth-quarter results on June 25, and the market responded with a 107% rally over the following 90 days — a dramatic reversal for a name that had been in a deep drawdown since 2023. The tape shows data center applications as the centerpiece of the turnaround story: CEO Jonathan DeGaynor framed the year as a shift from restructuring to growth, and the numbers back it up.That growth is no longer aspirational — management has locked in orders via 52-week EDI relationships, moving from a "spot buy" model to a vendor-managed inventory system. “We moved from being a spot buy, relationship to a 52-week EBI relationship. So we are quite confident with regard to the $130 million versus the $80 million.” — Jonathan DeGaynor, Chief Executive Officer · 2026-06-25 The technology itself is high voltage bus bars for AI-driven power density, including 800-volt DC rack architectures. This is a direct ride on the global AI data centers theme, which has been one of the strongest price movers across the tape.During fiscal 2020, we generated approximately $80 million of data center related sales. Based on current visibility, we expect that figure to increase approximately 60% to $130 million in fiscal 2020 with continued growth anticipated beyond that.
Financial Evidence: A Controlled Turnaround
The reported numbers still show a company in transition, but the trajectory is clear. Full-year net sales were ~$1.0B, down 3%, yet adjusted EBITDA jumped 60% to $68.2M. The fourth quarter saw gross profit surge to $72.2M from $19.6M — a massive step driven largely by customer recovery agreements. Management negotiated $45M in recoveries related to EV program delays and cancellations, recognizing $19M of that as earnings in FY2026, with the remainder to come through future production volumes and tooling reimbursements. “We negotiated approximately $45 million of customer recoveries resolving claims associated with EV program delays and cancellations. Approximately $23 million was recognized as revenue in fiscal 2020 6 and contributed approximately $19 million to earnings.” — Laura Michele Kowalchik, Chief Financial Officer · 2026-06-25 The underlying operational improvements are less headline-grabbing but more durable. Egypt delivered more than 700-basis-points of margin improvement, while Mexico facility — the main drag — is being rebuilt with new leadership and now supports data center and commercial vehicle localization. The company generated $15.6M of free cash flow and reduced net debt by 13% to $185M. Looking at the fundamentals, the evidence is mixed but stabilizing. Total revenue is down 3% year-over-year at $234M in the latest quarter, but management guides to 3% growth in FY2027 (8% ex-portfolio actions). The operating margin remains negative at -5.6%, but the trend is inflectional after a deep trough earlier in 2025. Effective net cash improved to -$207M, up 8% year-over-year, as the company focuses on deleveraging.Navigating the Risks: Execution and Valuation
The stock's 90-day move already prices in a successful transition. Even after a 25.9% pullback from its June peak, MEI trades at a price-to-revenue multiple of 0.2x, which is cheap on the surface but reflects the still-loss-making bottom line. The company guides FY2027 adjusted EBITDA of $72-82M, implying a margin of ~7-7.6% — a meaningful step but still thin. Management is candid about the challenges ahead. In prior calls, the same team was far more cautious on data center growth, prioritizing EDI visibility over promises. “But as we have said, we will not adjust our guidance from a data center standpoint until that EDI is locked in.” — Luke Junk, Analyst · 2025-12-04 That discipline is now paying off. Yet the auto segment — 46% of total — remains volatile. “Those programs were won years ago. That was revenue that was anticipated. And then over the last months, we have been negotiating with the customers to get these recoveries.” — Jonathan DeGaynor, Chief Executive Officer · 2026-06-25 The market's re-rating is justified by the data center momentum, but investors should note the Power Solutions business is still heavily exposed to EV program delays. The company expects auto revenue to recover to ~$200M in FY2027, but that recovery is dependent on customer schedules and the broader EV adoption curve.Methode is a classic small-cap turnaround candidate — the thesis is compelling, the tape has already moved, and the key is whether the company can execute on the data center ramp without further EV shocks. The next few quarters will be the real test of whether this is a sustainable reinvention or a one-off recovery.We see that coming back to close to $200 million in fiscal 2020 and continuing to continuing to grow. So the way in which we look at this is the automotive business overall, which is 46% of our total, is good business.