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Bull of the Day

The industrial companies are hanging in there despite predictions that the end of the cycle is near. Graco Inc. (GGG - Snapshot Report) recently beat the Zacks Consensus by 15.1%. This Zacks Rank #1 (Strong Buy) is expected to grow earnings in the double digits in both 2013 and in 2014.

Graco may not be a household name, but it makes products which influence every day life. It makes fluid-handling equipment and systems, with one of its best known products being the spray gun which is used to apply paint to homes, businesses and cars. But its systems also have other applications including squeezing tomato paste onto millions of frozen pizzas.

Founded in 1926 in Minnesota, the company has survived many different recessions and economic conditions. It is now global, with a diverse worldwide customer base.

Record Sales in Q1

On Apr 24, Graco announced record sales as they jumped 15% compared to a year ago to $269 million, however some of that was driven by the acquisition of Gema powder finishing business in August of 2012.

Graco operates in 3 segments: Industrial, Contractor and Lubrication.

Contractor sales were the strongest of the segments jumping 7.8% and up 11% in the Americas on the strength of the U.S. construction market and the recovery of the U.S. housing market.

The Industrial segment started the year slower than anticipated but it did see some strength in the auto market. The Lubrication segment was the weakest segment as revenues slipped 3% due to Asian sales sliding 28% as mining weakened. But Lubrication is just 10% of the company's revenue.

Still, Graco easily beat the Zacks Consensus Estimate by 11 cents. Margins expanded due to manufacturing cost improvements.

Double Digit Earnings Growth Expected

The analysts are bullish on Graco in 2013. 1 estimate for 2013 has already been revised higher in the last week. Earnings are expected to grow 22% in 2013 and another 10.3% in 2014.

These older manufacturing companies are suddenly in vogue with investors. Graco's shares are at 10-year highs. Check out the 2-year chart which shows the recent jump on the earnings beat.

But shares are also pretty pricey, at least historically, It is trading with a forward P/E of 20x, which is higher than its 10-year median of just 16.7.

Still, Graco has been rewarding shareholders with a dividend, currently yielding 1.7%.

If you're looking to invest in an older legacy industrial with income, Graco is one to have on your short list.

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Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Turnaround Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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