The Gorman-Rupp Company

Management at The Gorman-Rupp Company (GRC - Snapshot Report) has started to buy into the global economic recovery. After delivering solid second quarter results, the company said it was cautious and called conditions an "unpredictable environment."

However, after delivering a strong third quarter in which it posted its third consecutive positive earnings surprise, management stated it was "cautiously optimistic that improving business conditions will continue".

Analysts share this sentiment and have been revising their estimates higher, sending the stock to a Zacks #1 Rank (Strong Buy).

Beat by 12% in the Third Quarter

Gorman-Rupp reported third quarter earnings per share of 37 cents, beating the Zacks Consensus Estimate of 33 cents by 12%. It was a 19% increase over the same quarter in 2009.

Top-line growth was strong, increasing 15.4% year-over-year. Sales were higher due to a slowly recovering global economy and higher sales in the international fire protection market, the municipal market, and the construction, rental and industrial markets.

Meanwhile, the gross margin improved slightly from 25.1% of sales to 25.2%. Operating income increased a stellar 19.8%. EPS was impacted 3 cents due to overtime compensation as the company tried to keep up with demand during the quarter - not a bad problem to have.

"Cautiously Optimistic"

Management is cautiously optimistic that it can carry its positive momentum into 2011 as the global economy slowly rebounds. The company's backlog of orders increased 22.8% year-over-year to $104.6 million.

Estimates have been rising higher off the strong quarter. The Zacks Consensus Estimate for 2010 is $1.34, representing 22% EPS growth over 2009. The 2011 estimate is currently $1.60, equating to 20% EPS growth. It is a Zacks #1 Rank (Strong Buy) stock.

Dividend

Since 2000, Gorman-Rupp has raised its dividend at a compound annual growth rate of just 2.5%. It has a dividend yield of 1.3%.

Valuation

Shares are trading at 23.8x forward earnings, a premium to the industry average of 19.2x. Its price to book ratio is also above its peers at 2.8 vs. 2.1.

Read the September 2 article here.

Last Week's Growth & Income Zacks Rank Buy Stocks:

International Flavors & Fragrances, Inc. (IFF) has been surging lately due to strong demand both domestically and abroad. The company recently reported its 5th consecutive positive earnings surprise as revenue growth was strong around the globe. Read the full article.

Cracker Barrel Old Country Store, Inc. (CBRL) recently delivered a 10% earnings beat as a modest increase in same-store sales led to a significant increase in income thanks to relatively high operating leverage. It was the company's 9th consecutive positive earnings surprise. Read the full article.

ITC Holdings Corp (ITC) is one of those rare utility companies with a 5-year projected EPS growth rate in the double-digits. It also has a dividend yield of 2.2%. Read the full article.

Guess?, Inc. (GES) is increasingly becoming a globally recognized brand. Ten years ago, only 6% of revenue came from outside of North America - now it's almost 50%. Read the full article.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.