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Strong Buy on Methode Electronics

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On Sep 4, Zacks Investment Research upgraded Methode Electronics, Inc. (MEI - Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

This global developer and manufacturer of custom engineered electro-mechanical devices delivered positive earnings surprises in the last four quarters with an average beat of 124.58%. The long-term expected earnings growth rate for this stock is 15.0% on the back of sales growth of 4.58%.

Methode Electronics’ earnings per share in fiscal first quarter 2014 were 36 cents, surpassing the Zacks Consensus Estimate of 20 cents by 80%. The company registered a 40.9% year-over-year increase in revenue due to higher sales of center consoles to General Motors Company (GM - Free Report) and Ford (F - Free Report) . A 329 basis point year-over-year decline in selling and administrative expenses boosted the bottom line further.

The solid results prompted the company to revise its revenue and earnings guidance upwards. Methode Electronics expects fiscal 2014 revenue and earnings per share in the range of $670 million to $700 million and $1.40 to $1.60, respectively. This new guidance displaces the previous revenue and earnings per share guidance in the range of $630 million to $660 million and 91 cents to $1.11, respectively.

Better-than-expected sales for the General Motors K2XX program, solid performance from new product launches in European Automotive, North American Power and an improved sales mix in Power Products are expected to drive results going forward.    

Methode Electronics projects capital spending in fiscal 2014 between $25 million and $30 million. This includes additional capital for the launch of the SUV portion of General Motors’ K2XX program.

Methode Electronics by virtue of its consistent performance rewards shareholders through regular dividend payments. The company currently pays an annual dividend of 28 cents. The average dividend yield over the last five years is 2.64%, higher than the industry average of 1.33%.

The Zacks Consensus Estimate for fiscal 2014 has risen 46.8% in the last 7 days to $1.49 per share, reflecting estimated year-over-year growth of 192.16%. For fiscal 2015, the Zacks Consensus Estimate increased 38.7% in the past 7 days to $1.90 per share, reflecting year-over-year growth of 27.29%.

Besides Black Methode Electronics, another operator in the sector having a favorable Zacks Rank is AVX Corp. (AVX - Free Report) . AVX Corp. currently has a Zacks Rank #2 (Buy).

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