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Kadant Inc. (KAI - Free Report) easily topped expectations in its most recent quarterly report. The period ended a great year for the company and things should continue to improve in 2011.

Shares jumped on the earnings news, but the valuations still point to a discount for this Zacks #1 Rank (Strong Buy).

Company Description

Kadant is a supplier to the pulp and paper industry. The company's products are also used in the steel, rubber, food and other industries.

Extraordinary Rebound

On Feb 23 the company reported its fourth-quarter results that capped off a year that the CEO called an "Extraordinary rebound from 2009." Revenues for the quarter were up 29% to $73.3 million, on a particularly strong performance in China. The backlog has swelled 53%, to $94.3 million, to start 2011 off on the right foot.

Earnings per share were $0.42, well ahead of the $0.28 that Wall Street was looking for. Kadant has beaten expectations in each quarter for the past 5 years.

Raising Guidance

In addition to the results, Kadant also provided guidance for 2011 that led to a round of upward estimate revisions. The Zacks Consensus Estimate for 2011 jumped 21 cents, to $1.70. Next year's estimate is up 2 cents to $1.87.

Given the $1.41 earned in 2010, the expected growth rates are now 21% and 10%, respectively.

The Price is Right

Shares of Kadant are trading with a forward P/E of 15 times and a PEG at just 0.7. Other metrics, like the price to sales at 1.2 and the price to book of 1.5 times are also showing a discount.

The Chart

KAI was in a rut heading into the earnings news, but the results got shares back on track. Some may want to wait until the stock settles down a bit, but those valuations more than justify buying in at this level.

Kadant Inc.  - ticker KAI>


Bill Wilton is the Aggressive Growth Stock Strategist for He is also the Editor in charge of the market-beating Zacks Small Cap Trader service

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