Crane Co.

Crane Co. ( CR - Snapshot Report ) recently delivered its 7th consecutive positive earnings surprise on 18% sales growth and an expanding operating margin. Analysts raised their estimates following strong third quarter results, sending the stock to a Zacks #2 Rank (Buy).

Based on consensus estimates, analysts project 31% EPS growth for Crane this year and 14% growth next year. On top of this, the company pays a dividend that yields 2.2%.

Company Description

Crane Co. manufactures highly engineered industrial products for the aerospace, electronics, hydrocarbon processing, petrochemical, chemical, power generation, automated merchandising, transportation and other markets.

Crane has 5 business segments:

Fluid Handling: 46% of sales
Aerospace & Electronics: 26%
Merchandising Systems: 15%
Engineered Materials: 8%
Controls: 5%

The company was founded in 1855 and has a market cap of $2.7 billion.

Third Quarter Results

Crane reported better than expected results for the third quarter of 2011. Earnings per share came in at 89 cents, beating the Zacks Consensus Estimate by a penny. It was a stellar 27% increase over the same quarter in 2010.

Sales jumped 18% to $659 million, well ahead of the Zacks Consensus Estimate of $634 million. Crane experienced an 11% increase in core sales and benefited 3% from foreign currency effects and 3% from an acquisition.

Except for Engineered Materials, each segment experienced year-over-year sales growth.

Operating profit surged 31% as the company leveraged its fixed expenses. The operating margin improved from 11.2% to 12.5% of sales.

Outlook

Following the strong third quarter, CEO Eric Fast stated that "although there are indications of a slowing global economy, our strengthened portfolio of businesses and broad geographic exposure position us well for profitable growth."

Management also raised the lower end of its earnings guidance range. It now expects 2011 EPS between $3.35 and $3.45 per share. This prompted analysts to revise their estimates higher, sending the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2011 is $3.40, within guidance, and representing 31% growth over 2010 EPS. The 2012 consensus estimate is now $3.86, corresponding with 14% EPS growth.

Consensus estimates have steadily risen over the last several months as Crane has delivered 7 consecutive positive earnings surprises:

Dividend

On top of strong EPS growth, Crane pays a dividend that yields a solid 2.2%. As you can see, the company has been raising its dividend over the last several years:

Valuation

The valuation picture looks very reasonable for Crane. Shares trade at just 12.2x 12-month forward earnings, in-line with the industry average.

Its price to book ratio of 2.5 is a slight premium to the industry average of 2.3, but this appears to be justified given its superior returns on equity.

The Bottom Line

With strong earnings momentum, solid growth projections, an attractive 2.2% dividend yield and reasonable valuation, Crane offers investors a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.