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Strong Buy on DXP Enterprises

Zacks Equity Research

Zacks Investment Research upgraded DXP Enterprises, Inc. (DXPE) to a Zacks Rank #1 (Strong Buy) on Apr 20, 2013.

Why the Upgrade?

Sound track record of posting better than expected quarterly financial results and benefits from strategic acquisitions have helped the shares of DXP Enterprises rise by approximately 55% year-to-date. A brief review of the last reported quarterly results and the acquisitions made, will to some extent, justify our bullish stance on the company.

DXP Enterprises reported a year-over-year improvement of 51% in its earnings per share for the fourth quarter 2012; announced on Feb 27, 2013. The company’s earnings came in at 92 cents per share, compared with 61 cents reported in the year-ago quarter and 10.8% above the Zacks Consensus Estimate of 83 cents.    

Revenue increased by 34% to settle at $293 million on the back of solid performances at its segments. Despite a rise in the cost of sales and operating expenses, operating margin in the quarter was 8.3% above 6.9% in the year-ago quarter.

Over and above the satisfactory the financial results in the year 2012, DXP Enterprises completed seven acquisitions with the help of nearly $37 million in free cash flow generated during the year. We see that the company’s policy to expand is at its pace in year 2013 as well. Recently, on Apr 17, 2013, the company completed acquiring National Process Equipment, Inc. The acquisition has made DXP Enterprises the largest rotating equipment distributor across North America.

The earnings estimates are on the rise for this provider of MRO products, equipment and services. The Zacks Consensus Estimate, in the last 60 days has gone up by 4.2% both for 2013 and 2014 to settle at $3.93 and $4.50, respectively. DXP Enterprises is slated to release its first quarter 2013 financial results on Apr 29, 2013.

All these together with a positive earnings surprise in all the four trailing quarters with an average of +11.6%, have raised optimism for better results ahead. For 2013 and 2014, we have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +24.2% and +11.6%, respectively.

Other Stocks to Consider    

DXP Enterprises caters to the needs of its industrial customers by providing maintenance, repair and operating (MRO) products, equipment and services. The company currently has a market capitalization of roughly $943 million.
Other stocks worth a look in the industry are Tri-Tech Holding, Inc. (TRIT), EnPro Industries, Inc. (NPO), and The Babcock & Wilcox Company (BWC), each holding a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on BWC

Read the Full Research Report on DXPE

Read the Full Research Report on NPO

Read the Full Research Report on TRIT

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