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Sypris Solutions Inc. delivered a positive earnings surprise of 66.7% in the second quarter of 2012. This provider of outsourced manufacturing and electronics services achieved Zacks #1 Rank (Strong Buy) status on September 5. Furthermore, a forward price-to-earnings (P/E) multiple of just 8.9 and price-to-sales (P/S) multiple as low as 0.4 make it a true value pick.

Sypris Crushes Q2 Estimates

Sypris reported strong second quarter 2012 results on August 7, including earnings of 25 cents per share that exceeded the Zacks Consensus Estimate by 10 cents. The better-than-expected earnings were primarily driven by strong revenue growth and margin expansion.

Revenue jumped 16.3% from the prior-year quarter to $98.9 million, primarily driven by a strong performance in the Industrial Group segment (up 20.3%). Gross profit expanded 390 basis points to 13.4% driven by productivity improvements. Sypris reported operating income of $4.5 million compared with $0.2 million in the prior-year quarter, driven by higher revenue and gross profit base.

Earnings Momentum on the Rise

Earnings estimates moved higher over the last 30 days. For 2012, the Zacks Consensus Estimate jumped 27% to 80 cents, representing a 367.65% year-over-year growth in earnings. For 2013, the Zacks Consensus Estimate of 84 cents improved 20%, reflecting a 5.0% year-over-year growth in earnings.

Valuation Continues to Impress

In addition to low P/E and P/S multiples, the stock looks attractive with respect to a price-to-book (P/B) multiple of just 2.05. A P/E below 15.0, a P/S ratio less than 1.0 and a P/B ratio under 3.0 generally suggests a value stock. Moreover, Sypris’ Return on Equity (ROE) of 16.6% is much higher than the 8.5% of the peer group.

Louisville, Kentucky-based Sypris Inc. was incorporated in 1997 and has market capital of $142.1 million. Sypris’ Industrial Manufacturing Group (Industrial Group) supplies forged and machine components. Its main customers are Meritor Inc. (MTOR) and Dana Holding Corp (DAN).

The Aerospace & Defense Electronics Group (Electronics Group) provides IT security solutions to different government agencies all over the world. Sypris Inc. also provides Electronic Manufacturing services to companies such as Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC).

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