Estimates have been soaring for Columbia Sportswear Company (COLM) after the company delivered a 21% positive earnings surprise on October 25. It is a Zacks #2 Rank (Buy) stock.
Analysts project strong earnings growth for the outerwear and sportswear manufacturer over the next couple of years. Based on consensus estimates, analysts are looking for 34% EPS growth this year and 15% growth next year.
On top of this growth the company pays a dividend that yields a solid 1.6%.
Solid Third Quarter
Columbia delivered excellent third quarter results on October 25. Earnings per share came in at $1.94, crushing the Zacks Consensus Estimate of $1.60. It was a stellar 27% increase over the same quarter in 2010.
Net sales rose 12% to a record $566.8 million, driven by strong gains in the company’s Sorel brand. From a geographic standpoint, sales were particularly strong in the Europe, Middle East & Africa region as well as Latin America & Asia Pacific.
While many apparel companies have struggled with gross margin contraction due to rising input costs, Columbia realized a solid 150 basis point expansion to 44.0%.
These factors led to a 26% increase in operating income and a 170 basis point improvement in the operating margin to 15.3% of net sales.
Rising Estimates
Analysts have been raising their estimates significantly higher for both 2011 and 2012 off of the strong quarter. This sent the stock to a Zacks #2 Rank (Buy).
The Zacks Consensus Estimate for 2011 is now $3.02, representing 34% growth over 2010 EPS. The 2012 consensus estimate is currently $3.49, corresponding with 15% EPS growth.
Dividend
On top of this strong earnings growth, Columbia offers investors a dividend that yields a solid 1.6%.
Columbia has raised its dividend three times in the last two years. With a debt-free balance sheet, strong earnings growth projections and a relatively low payout ratio of 39%, I’d expect more dividend hikes on the horizon.
The valuation picture looks reasonable for Columbia. Shares trade at just 1.9x book value, a significant discount to the industry average of 3.1x.
It sports a forward P/E of 18.3, a slight premium to the industry average of 17.4. But this seems justified given the company’s higher than average growth rate.
The Bottom Line
With rising earnings estimates, strong growth projections, a solid 1.6% dividend and reasonable valuation, Columbia Sportswear offers a lot to like.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.
