DXP Enterprises, Inc.

Company Description

Houston, TX-based DXP Enterprises is a distributor of pumps, bearings, and general MRO supplies. The firm also offers higher value-added services, such as integrated supply and fabrication/assembly of pump, hydraulic, and gear systems and components. Its customer base is primarily North American through ~165 sites. Markets served include global energy, domestic food/beverage, and domestic general industrial.

Estimates Move Higher

DXPE has seen its Zacks Consensus Earnings Estimate for the coming quarter increase 6% since late November. The increase is an indication that analysts believe that the company will continue to produce higher earnings.

Acquisitions drive growth

DXPE has moved to acquire two companies over the last few months. These acquisitions do not appear, at least to one covering analyst, to be about cost synergies, but rather to add critical mass. The Kenneth Crosby transaction was immediately accretive to earnings and was announced on 10/12/11 and discussed on the most recent earnings conference call.

The company also acquired C.W. Rod Tool Company which is headquartered much closer to company headquarters in Houston, Texas. The C.W. Rod Tool Company deal was announced in mid-December 2011.

Solid History of Earnings Surprises

DXPE has posted positive earnings surprises in each of the last six quarters. The average earnings beat is just a bit over $0.03. As earnings continue to grow, the beats of $0.03 and $0.04 have become smaller in terms of percentage of total earnings, but that has not slowed down the price impact on shares. In the most recent quarter, the beat of $0.03 was roughly 5%, but the price impact on shares was a healthy 9%.

Valuation

On a price to earnings basis, DXPE trades at a slight premium to the industry on a trailing twelve month basis. On the forward PE, the premium is more pronounced, indicating the higher expectations for DXPE compared to the industry. On the value side of things, shares trade at a slight premium in terms of price to book, but at a slight discount for price to sales when both metrics are compared to the industry.

The Chart

The price and consensus chart below shows that increased earnings expectations have help push the stock higher. Having seen quite a run of late, shares of DXPE still have room to run should earnings continue to beat expectations. Shrewd M&A activity to help drive earnings will certainly help the business and the stock to move higher. DXPE is a Zacks #1 Rank (Strong Buy).

Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service