The automotive industry has come roaring back to life. Dorman Products, Inc. (DORM), which provides auto replacement parts, saw revenue jump 22% in the third quarter. The stock has attractive valuations, trading at 14.5x forward estimates.
Dorman has been around almost since the birth of the automobile, when in 1918, the founders realized that there was a real business for hard to find auto replacement parts.
The company used to actually find the parts in the junk yard but now distributes thousands of products under numerous brand names such as Dorman, AutoGrade, First Stop, Conduct-Tite and Scan-Tech.
7th Earnings Surprise in a Row
On Oct 26, Dorman Products reported its third quarter results which blew by the Zacks Consensus Estimate by 27%. Earnings per share were 71 cents compared to the consensus of 56 cents. This is 61% better than a year ago, which was 44 cents.
It continued an incredible streak of 7 earnings surprises in a row which began in early 2009 as the economy was slowing coming out of the recession.
Revenue soared to $119.2 million from $98 million in the third quarter last year on strong customer demand and higher new product sales. For the first 9 months, revenue climbed 18.7%.
Outlook Looks Good for 2011
The company is optimistic about 2011 as it plans on having the largest number of new product releases in its history for both its new and existing product lines.
It has also begun an expansion of its Warsaw, Kentucky distribution facility to support its future growth.
The addition will be about 175,000 square feet of warehouse space at the cost of $9 million. It should be completed by the spring of 2011.
Zacks Consensus Estimates Head Up
Even though the company did not provide earnings per share guidance, given the big beats the last few quarters, it’s not surprising that the analysts are raising estimates.
The 2010 Zacks Consensus is up 14 cents to $2.36 in the last month. Analysts expect earnings growth of 60.2% compared to 2009.
The 2011 Zacks Consensus has also been on the move higher. It has jumped to $2.61 from $2.33 in the last 30 days. This is still double digit earnings growth of 10.6%.
Valuations Still Look Good
In addition to an attractive P/E ratio, the company also has a price-to-book ratio of 2.4, which is within the parameters of a value stock.
The company also has an outstanding 1-year return on equity (ROE) of 18%, well above its peers at 11.7%.
Dorman Products is a Zacks #1 Rank (strong buy) stock.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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