Thursday, February 22, 2007

Muted Reaction

Dynamic Materials (NasdaqGS:BOOM) reported earnings a few hours ago and I believe the stock should be higher.

Somethings to consider:

·The average analyst earnings estimate was $0.44 EPS, the company delivered $0.54, a 19% beat.
· Revenue was expected to be $28.6mm, it came in at $35.7mm, a near 20% beat.
· Based on the old estimates the price target is $40, the stock is trading at $35 in the aftermarket.
· The industry average Debt/Total capital stands at 25% right now, BOOM is at 0.72%.
· The industry average operating margin is about 4%, BOOM is at 16%.
· The industry average ROE is 12%, BOOM has a ROE of 38%.

I think the analysts will revise their estimates upward given how conservative they are on the growth of the company.

The other side of the coin is that Dynamic Materials is approaching maximum production and so growth will revert to the mean. It seems management understands this and that is why they expect to have doubled production capacity in the Mt. Braddock facility by the end of the second quarter, expand their cladding operations in Europe and established a CAPEX budget of approximately $7.1 million in 2007.

I think BOOM is worth owing down here below $40 in light of this new information. In the short term I expect analyst revisions to be a catalyst to take this stock higher, as clearly earnings alone have not.

DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. The information above has been obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The author and affilates shall have no obligation to update or amend any information contained above. For informational and educational purposes only.

4 comments:

Jim said...

Thanks for your post on BOOM. I have been in and out over the last few years, currently holding 15k shares.

May I ask what you make of the price action since earnings? How can this issues trade 10x avg daily volume and go nowhere? Perhaps the large short position has something to do with it? I would have expected a squeeze.

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