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Pall Corporation (PLL): Zacks Rank Buy

Todd Bunton

Pall Corporation (NYSE:PLL - News) recently delivered better than expected results for the first quarter of its fiscal 2012. This marked the company's 6th positive earnings surprise in 7 quarters.

Analysts have been raising their estimates off of the strong quarter, sending the stock to a Zacks #2 Rank (Buy). Based on current consensus estimates, analysts project 16% EPS growth this year and 13% growth next year.

The company also recently raised its dividend by 20%. It currently yields a solid 1.4%.

Company Description

Pall makes filters. It operates in two segments: Life Sciences and Industrial.

The Life Sciences division is focused on the Medical, BioPharmaceutical and Food & Beverage markets. The Industrial group is focused on the Energy & Water, Aeropower and Microelectronics markets.

It is headquartered in Port Washington, New York and has a market cap of $6.9 billion.

First Quarter Results

Pall delivered better than expected results for the first quarter of its fiscal 2012. Earnings per share came in at 74 cents, beating the Zacks Consensus Estimate by 9 cents. It was a stellar 19% increase over the same quarter in 2011.

Sales jumped 17% year-over-year to a quarterly record of $705.6 million, well ahead of the Zacks Consensus Estimate of $648.0 million. Excluding foreign currency effects, sales rose 12%.

Orders in all three of Pall's global regions grew by double digits, including 15% in Europe. The Life Sciences segment rose 10% in local currencies, driven in large part by a 16% increase in BioPharmaceuticals. The Industrial segment saw top-line growth of 14% as sales to the Energy & Water industries jumped 29%.

Overall gross profit declined from 51.0% to 50.5% of net sales as an increase in Life Sciences was more than offset by a decline in the Industrial group.

Estimate Rising

Following strong Q1 results, analysts raised their estimates for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $3.22, representing 16% growth over 2011 EPS. The 2013 consensus estimate is currently $3.65, corresponding with 13% EPS growth.

Analysts believe that a combination of (1) Pall's broad geographic diversification (including an increasing presence in the emerging markets), (2) its steady stream of sales from replacement filters (~75% of revenue), and (3) margin expansion should drive strong double-digit EPS growth over the next several years.

Solid Income

In addition to strong earnings growth, the company pays a dividend that yields a solid 1.4%. On January 19 the company announced a 20% increase in its quarterly dividend to 21 cents per share.

Since 2004, Pall has raised it at a compound annual rate of 11%.

Reasonable Valuation

Although it's not a screaming value, valuation is still reasonable for PLL. Shares trade at 17.7x 12-month forward earnings, in-line with the peer group and its 10-year median.

The Bottom Line

With rising estimates, strong growth projections, a solid 1.4% dividend and reasonable valuation, Pall Corporation still offers a lot to like.

Read the July 15 article here.

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Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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