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Haynes International

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Metal alloys maker Haynes International Inc. (HAYN - Free Report) is poised for growth as demand increases from the core industries that it serves. This Zacks #2 Rank (Buy) has racked up three positive earnings surprises in the past four quarters, and is expected to release third quarter results on July 30.

A Solid Second Quarter

Haynes reported second-quarter fiscal 2012 results on May 3, delivering a positive earnings surprise of 18.3%. Earnings of $1.23 per share topped the Zacks Consensus Estimate of $1.04. Profit skyrocketed 143.7% year over year to $15.2 million on the back of a double-digit growth in sales.

Revenues spiked 14.2% year over year to $158.9 million, benefiting from higher volume and a better average selling price. The other bright spot was significant growth in gross margin, which climbed to 21.7% from 14.8% a year ago, aided by a better product mix and improved volume. Operating income more than doubled over the prior-year quarter to $23 million.

Haynes expects its current backlog to help its performance for the remainder of fiscal 2012. The company is ramping up capital spending to boost capacity and improve customer service and product quality. In June, Haynes said that it is investing $61 million to expand production capacity across its Arcadia and Kokomo facilities, which will help it to meet growing end-market demand.

Rising Estimates

The Zacks Consensus Estimate for fiscal 2012 has moved up by 3 cents (or 0.7%) over the last 60 days to $4.29 a share, representing an estimated annualized growth of 64.9%. For fiscal 2013, the Zacks Consensus Estimate rose by 4 cents (or 0.7%) to $5.45 per share over the same period, reflecting a projected growth of around 27.1%.

Reasonable Valuation

Haynes’ valuation looks reasonable on a P/E basis. Its trailing twelve months P/E of 13.64x is below the peer group average of 13.75x. Moreover, the stock is currently trading at a forward P/E of 11.39x, lower than the peer group average of 11.79x. The price-to-book of 2.03x is, however, above the peer group average of 1.08x. Moreover, Haynes has a 1-year ROE of 15.5%, higher than its peer group average of 11.1%, reflecting efficient capital deployment.

Chart Shows Potential

The price and consensus chart shows that the stock has been tracking the rising earnings estimates lines since early 2009 with a few minor intermittent retracements. The earnings growth potential is clear given the rising gap between the estimate lines for 2011, 2012 and 2013. As the earnings estimates moves higher, the stock is likely to follow suit.

Founded in 1912, Haynes International Inc. makes corrosion-resistant alloys for aerospace, chemical processing, gas turbine and other industries. It specializes in manufacturing nickel and cobalt-based alloys in sheet, coil and plate forms. The company, which has a market cap of roughly $594 million, has a diversified customer base and markets its products through its direct sales organization as well as independent distributors and sales agents.

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