Franklin Electric Co., Inc.

The question on every investor's mind right now is whether or not another recession is right around the corner. While there has been a recent string of weak economic data, Franklin Electric Co., Inc. (FELE - Snapshot Report) is showing no signs of slowing down.

The company reported record quarterly sales and profit for its second quarter on August 3. And the growth isn't just coming from emerging markets. Franklin Electric is seeing surging demand for its products both in the U.S. and Canada.

Analysts revised their estimates significantly higher for both 2011 and 2012 following the strong second quarter, sending the stock to a Zacks #1 Rank (Strong Buy).

The company also pays a dividend that yields a solid 1.4%, and valuation looks very reasonable at just 14.0x forward earnings.

Company Description

Franklin Electric manufactures groundwater and fuel pumping systems, composed primarily of submersible motors, pumps, electronic controls and related parts and equipment.

It is headquartered in Bluffton, Indiana and has a market cap of $871 million.

Record Quarterly Results

Franklin Electric reported very strong second quarter results on August 3. Earnings per share came in at a quarterly record of 92 cents, 11 cents ahead of the Zacks Consensus Estimate. It was a whopping 42% increase over the same quarter in 2010.

Sales rose 18% to a quarterly record of $224.1 million, beating the Zacks Consensus Estimate of $221.0 million. The company continues to benefit from surging demand for its agricultural and irrigation products, as well as from market share gains in the U.S. and Canada.

The gross profit as a percentage of net sales improved from 33.9% to 34.5% due to the leveraging of fixed costs. Meanwhile, adjusted operating income rose 32%.

Strong Growth Ahead

Analysts were impressed by Franklin's second quarter results and revised their estimates significantly higher for both 2011 and 2012, sending the stock to a Zacks #1 Rank (Strong Buy).

Based on consensus estimates, analysts project strong growth from the company over the next two years. The Zacks Consensus Estimate for 2011 is $2.68, representing 38% EPS growth. The 2012 consensus estimate is 15% higher at $3.08.

Consensus estimates have been steadily rising over the last several months as Franklin Electric has delivered 7 consecutive positive earnings surprises:

Solid Dividend

Franklin Electric pays a dividend that yields 1.4%. The company has a history of steadily raising its payout. Since 2000, it has increased its dividend at an average annual rate of 8.6%:

With a relatively low payout ratio of 23% and strong earnings growth projections, expect more dividend hikes in the near future.

Reasonable Valuation

Shares of FELE, like most of the market, have pulled back quite a bit over the last few weeks. This has made for some attractive valuations.

The stock trades at just 14.0x forward earnings, a significant discount to its 10-year median of 18.5x. Its price to sales ratio is only 1.1, which is in-line with the industry average.

The Bottom Line

With record sales and profits and rising earnings estimates, Franklin Electric doesn't appear to be slowing down any time soon. At just 14.0x forward earnings and a solid dividend yield, the stock looks pretty attractive.

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