Earnings momentum for
Northwest Pipe Co.
) has been moving higher, helping this welded steel pipe maker
reach a Zacks #1 Rank (Strong Buy). With a solid order backlog,
healthy double-digit earnings growth projections and a significant
opportunity from a major water pipeline project, NWPX fits the bill
for aggressive growth investors.
Northwest Pipe Tops in 2Q
Northwest Pipe reported second-quarter 2012 results on August 6,
delivering a positive earnings surprise of 8.6%. Earnings of 38
cents per share topped the Zacks Consensus Estimate of 35 cents.
Profit, however, slipped 28% year over year to $3.6 million, hurt
by lower sales. Revenues fell nearly 9% to $131 million as a
double-digit decline in the company's Water Transmission division
more than offset a growth in the Tubular Products segment. As a
result, gross margin dipped to 10.4% from 11.6% a year ago.
Revenues from the Water Transmission segment slid roughly 21% year
over year to $59.1 million on account of a lower selling price and
volume. On a positive note, Tubular Products sales rose roughly 4%
to $72 million, benefiting from higher volume and pricing. Order
backlog climbed nearly 7% year over year to $273 million in the
Northwest expects a strong second half for its Water Transmission
business due to the recently announced Lake Texoma water pipeline
project. In July 2012, the company was awarded a contract to supply
welded steel pipe for the project, which will restore North Texas
Municipal Water District's raw water supply. The project, which is
the largest in the company's history, is expected to provide a
roughly $69 million revenue opportunity.
However, the Tubular Products franchise is expected to face
challenges in the third quarter due to rapidly increasing imports
of competing energy products. Nevertheless, Northwest Pipe
continues to focus on production improvement in this business.
Earnings Estimates Moving Higher
The Zacks Consensus Estimate for 2012 has moved up by 5 cents (or
2.6%) over the last 60 days to $1.97 per share, indicating an
estimated annualized growth of roughly 46%. For 2013, the Zacks
Consensus Estimate rose by 10 cents (or 4.2%) over the same period
to $2.46 per share, representing a projected year-over-year growth
of nearly 25%.
Northwest Pipe is currently trading at a forward P/E of 13.02x,
representing a 1.1% discount to the peer group average of 13.17x.
The price-to-book of 0.96x is also lower than the peer group
average of 1.00x. Moreover, the price-to-sales of 0.45x is below
the peer group average of 0.58x.
A Peek at the Chart
The price and consensus chart shows that Northwest Pipe had a
couple of bumpy years (2009 and 2010) as estimates started high but
ended lower both times. Lower estimates also led to the stock's
depressed price performance in 2009 and 2010.
However, 2011 saw a trend reversal and earnings estimates moved
higher. A similar trend has been witnessed for 2012 and 2013. The
healthy earnings growth potential is portrayed by the gaps between
the estimate lines for 2011, 2012 and 2013.
Founded in 1966, Northwest Pipe Co. makes large-diameter steel
pipeline systems for use in water infrastructure applications,
mainly in drinking water systems. The company also makes smaller
diameter, electric resistance welded steel pipes and other similar
products for use in energy, construction, agriculture, commercial
and industrial, and traffic signpost applications. Northwest Pipe,
which has a market cap of roughly $240 million, markets its
products through a direct sales force, installation contractors and
sales agents in the U.S., Canada and Mexico.
NORTHWEST PIPE (NWPX): Free Stock Analysis
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