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Bull of the Day

Tower International, Inc. (TOWR - Snapshot Report) recently delivered its 5th consecutive positive earnings surprise, which was driven by better-than-expected revenue. Management also provided bullish guidance for 2013, prompting analysts to revise their estimates meaningfully higher.

This sent the stock to a Zacks Rank #1 (Strong Buy).

In addition to strong earnings momentum, shares look cheap at just 9.1x forward earnings and 2.0x book value, both well below the industry medians.

Tower International is a global automotive supplier that provides a broad range of metal structures from stampings to complex body and frame assemblies for virtually every major automotive vehicle manufacturer.

With global auto sales expected to reach a record 83 million units in 2013, suppliers like Tower International have excellent growth potential.

Strong Fourth Quarter Beat

Tower International reported better-than-expected fourth quarter results on February 15. Earnings per share came in at $0.05, beating the Zacks Consensus Estimate calling for a loss of -$0.06. It was Tower's 5th consecutive positive earnings surprise.

The earnings beat was driven in part by a stronger-than-expected top-line. Revenue for the quarter was $508 million, which was ahead of the consensus of $502 million.

Estimates Rising

In the fourth quarter press release, management provided earnings guidance of $1.10-$1.40 per share on revenue of $2.1-$2.15 billion. CEO Mark Malcolm also stated that "2013 should be an up year if customer volumes hold up, generating positive free cash flow and a growing liquidity cushion. Our revenue backlog and potential significant re-financing savings in 2014 are other positive catalysts on the near horizon."

This bullishness prompted analysts to revise their estimates significantly higher for both 2013 and 2014, sending the stock to a Zacks Rank #1 (Strong Buy).

The Zacks Consensus Estimate for 2013 is now $1.29, within guidance, and representing 19% growth over 2012 EPS. The 2014 consensus increased to $1.82, which corresponds with 42% annual EPS growth.

Growing Demand for Cars

Demand for automobiles has been growing around the globe as the middle class emerges in places like China. According to forecaster LMC Automotive, global light vehicle sales are expected to reach a record 83 million units in 2013.

Here in the United States, new vehicle sales are still recovering from the dark days of the Great Recession. As you can see in this chart below from the Federal Reserve of St. Louis, vehicle sales in the U.S. have made a strong rebound in recent years but are still well below pre-recession levels:

Attractive Valuation

Despite the positive earnings momentum and strong growth potential, the valuation picture still looks very attractive for Tower International.

Shares currently trade at just 9.1x 12-month forward earnings, below the industry median of 12.6x. And its price to book ratio of 2.0 is also below the industry median of 2.3.

The Bottom Line

With strong earnings momentum, favorable industry trends and cheap valuation, Tower International offers attractive upside potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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