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Aggressive Growth

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Northwest Pipe Co.

NWPX

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Earnings momentum for Northwest Pipe Co. (NWPX - Snapshot Report) has been moving higher, helping this welded steel pipe maker reach a Zacks #1 Rank (Strong Buy). With a solid order backlog, healthy double-digit earnings growth projections and a significant opportunity from a major water pipeline project, NWPX fits the bill for aggressive growth investors.

Northwest Pipe Tops in 2Q

Northwest Pipe reported second-quarter 2012 results on August 6, delivering a positive earnings surprise of 8.6%. Earnings of 38 cents per share topped the Zacks Consensus Estimate of 35 cents.

Profit, however, slipped 28% year over year to $3.6 million, hurt by lower sales. Revenues fell nearly 9% to $131 million as a double-digit decline in the company’s Water Transmission division more than offset a growth in the Tubular Products segment. As a result, gross margin dipped to 10.4% from 11.6% a year ago.

Revenues from the Water Transmission segment slid roughly 21% year over year to $59.1 million on account of a lower selling price and volume. On a positive note, Tubular Products sales rose roughly 4% to $72 million, benefiting from higher volume and pricing. Order backlog climbed nearly 7% year over year to $273 million in the quarter.

Northwest expects a strong second half for its Water Transmission business due to the recently announced Lake Texoma water pipeline project. In July 2012, the company was awarded a contract to supply welded steel pipe for the project, which will restore North Texas Municipal Water District's raw water supply. The project, which is the largest in the company’s history, is expected to provide a roughly $69 million revenue opportunity.

However, the Tubular Products franchise is expected to face challenges in the third quarter due to rapidly increasing imports of competing energy products. Nevertheless, Northwest Pipe continues to focus on production improvement in this business.

Earnings Estimates Moving Higher

The Zacks Consensus Estimate for 2012 has moved up by 5 cents (or 2.6%) over the last 60 days to $1.97 per share, indicating an estimated annualized growth of roughly 46%. For 2013, the Zacks Consensus Estimate rose by 10 cents (or 4.2%) over the same period to $2.46 per share, representing a projected year-over-year growth of nearly 25%.

Reasonable Valuation

Northwest Pipe is currently trading at a forward P/E of 13.02x, representing a 1.1% discount to the peer group average of 13.17x. The price-to-book of 0.96x is also lower than the peer group average of 1.00x. Moreover, the price-to-sales of 0.45x is below the peer group average of 0.58x.

A Peek at the Chart

The price and consensus chart shows that Northwest Pipe had a couple of bumpy years (2009 and 2010) as estimates started high but ended lower both times. Lower estimates also led to the stock’s depressed price performance in 2009 and 2010.

However, 2011 saw a trend reversal and earnings estimates moved higher. A similar trend has been witnessed for 2012 and 2013. The healthy earnings growth potential is portrayed by the gaps between the estimate lines for 2011, 2012 and 2013.

Founded in 1966, Northwest Pipe Co. makes large-diameter steel pipeline systems for use in water infrastructure applications, mainly in drinking water systems. The company also makes smaller diameter, electric resistance welded steel pipes and other similar products for use in energy, construction, agriculture, commercial and industrial, and traffic signpost applications. Northwest Pipe, which has a market cap of roughly $240 million, markets its products through a direct sales force, installation contractors and sales agents in the U.S., Canada and Mexico.

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