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CDI Corp. (CDI): Zacks Rank Buy

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CDI Corp. (CDI) reported solid third quarter results on October 30 that included a positive surprise of nearly 30%. The expected earnings growth rate for this provider of engineering, technology and staffing services is 18.0% over the next five years, which is well above the 11.7% for the industry. CDI will also be paying a quarterly cash dividend of 13 cents per share on November 20.

Expense Control Led to a Third Quarter Beat

CDI's third quarter earnings per share (EPS) of 27 cents were up 80.0% from the year-ago quarter and ahead of the Zacks Consensus Estimate by 28.6%.

Revenues grew 2.5% year over year to $279.4 million, on the back of strong performances across its served industry verticals (Oil, Gas & Chemicals, Aerospace & Industrial Equipment, and Hi-Tech).

Cost control efforts were largely responsible for the operating margin expansion.

Earnings Estimates Trending Upward

In just the past 7 days, the Zacks Consensus Estimate for fiscal 2012 is up 4.5% to 93 cents, which suggests year-over-year growth of nearly 100%. Meanwhile, the Zacks Consensus Estimate for fiscal 2013 is up 0.9% to 93 cents in that time.

Valuation is Attractive

Considering the company's growth prospects, the stock's discounted valuation makes it very attractive to own. The stock has a PEG ratio of 1.1, compared with the peer group's 1.2. CDI is also trading at a P/S and P/B of 0.30x and 1.20x, respectively, representing discounts of 43.4% and 25.5% from peer group averages. The return on equity (:ROE) of 5.8% is also above the industry average of 3.6%.

Chart Shows Growth Potential

The 12-month EPS chart clearly shows that both share prices and earnings have remained volatile over the last few years. But the price movement has been in tandem with EPS growth.

Currently, the share price is hovering around $17.00. The consensus estimates for 2012 and 2013 are trending upward. The estimate revision graph indicates a slow but steady upward trend through fiscal 2015. As illustrated in the chart below, share prices should increase at a similar pace with that of the estimate revision trend.

CDI Corp. offers various engineering and technology solutions, and professional staffing services to large and mid-sized companies located primarily in the United States, Europe and the Asia Pacific regions. The company operates through three segments, namely Global Engineering and Technology Solutions (:GETS), Professional Services Staffing (:PSS), and Management Recruiters International (:MRI). The company serves industries such as Oil & Gas, Chemicals, Aerospace, Industrial Products, Hi-Tech industries, U.S. defense, financial services, rail and mining industries. IBM (IBM) is one of CDI's prime clients.

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