Gorman Rupp (GRC) has beaten the Zacks Consensus Estimate in each of the last four quarters with an impressive performance in the March 2014 quarter. Along with a fair valuation, this stock pays a small dividend and as a Zacks Rank #1 (Strong Buy), it is the Bull of the Day.
Pump You Up!
Gorman Rupp calls themselves 'The Pump People' - and with good reason. The company makes and sells pumps and pump systems for use in water, waste-water, flood control, construction and petroleum industries just to name a few. Founded nearly 80 years ago by J.C. Gorman and H.E. Rupp, the company has grown from humble beginnings to 1,240 employees. GRC increased the cash divided in 2013 sustaining a record of dividend increases for 41 consecutive years and will pay the 257th consecutive quarterly divided during the second quarter of 2014.
Most Recent Quarter
Groman Rupp reported results for the first quarter of this year back in April and it was a strong strong quarter indeed. GRC posted EPS of $0.38, ten cents ahead of the Zacks Consensus Estimate of $0.28 for a positive earnings surprise of 35%. The company also posted revenue of $110M, $14M ahead of estimates for a 14.2% positive revenue surprise.
The Prior Three Quarters
Before this recent strong beat, the company posted three other beats of the Zacks Consensus Estimate. The June 2013 quarter, which was reported in July of that year was a beat of $0.08 or 30% ahead of expectations. A solid revenue surprise of $12 pushed quarterly revenue to $106M that quarter and the stock moved higher by 9% in the session following the report.
The September 2013 quarter was a beat of two cents and the December 2013 quarter was beat of three cents. The four quarters of beats comes after a year of misses, but in the release for the most recent earnings report it was noted that they saw record product shipments. That is an indication that momentum is building.
GRC Sees Estimates Moving Higher
The Zacks Consensus Estimate for 2014 for GRC had been up and down throughout 2013. Following the most recent earnings report we have seen analysts take their numbers higher as a result of strong guidance. Since November of 2013, the Zacks Consensus Estimate for GRC has moved from $1.32 to $1.39 In March and is now at $1.52.
The 2015 Zacks Consensus Estimate has also seen an increase of late. Analysts started the number in October 2013 at $1.56, but that moved higher to $1.59 in March and is currently at $1.69. It is fairly safe to assume that analysts have limited visibility into 2015, so those numbers may only inch higher as GRC posts more consensus beating quarters.
In this market, valuation is key -- buying high forward PE stocks is just not the smartest move. While GRC trades at a small premium to its industry, it also pays that small dividend which keeps it on the screens of investors who are looking for income producing stocks. The stocks trades at 21x forward earnings while the industry average is 17x. The premium is small in terms of the price to book multiple which has GRC at 3.1x compared to 2.7x. The price to sales metric has the stock trading at 2x compared to a 1.1x industry average. So why the premium? Well GRC is looking at revenue growth of 11% in 2014 and that compares very favorably to a 1% industry average. More impressive that that is the 21% earnings growth that is expected for this stock, more than 3x the 7% earnings growth that is projected for the industry.
I already touched on 2015 visibility, but GRC is expected to continue growing faster than the industry average with 7.5% revenue growth compared to 4.7% as an industry average.
My final point for why GRC is trading at a premium to its peers is that it has a better net margin. The 8.4% net margin that the Zacks Research System (:ZRS) shows is well ahead of the 7.8% net margin for the broader industry it competes in. This means they are able to keep more of the money they take in from sales, and they have to in order to keep paying that dividend! e
The price and consensus chart is a very useful tool for investors. Developed here at Zacks, we show how earnings estimates have moved in relation to the stock price. The price and consensus chart shows that the stock really picked up as the earnings estimates moved higher in mid 2013. Since then, estimates continue to move higher and higher. This is just what investors want to see in a stock.
Follow Brian Bolan on twitter at @BBolan1
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
GORMAN RUPP CO (GRC): Free Stock Analysis Report
Zacks Investment Research