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Diamond Foods Shapes Up, Looks Ready to Dish Out Growth and Value

Stocks in this article: DMND MDLZ PEP

NEW YORK (TheStreet) -- Shares of Diamond Foods (DMND) have been on an incredible run, soaring more than 55% since reaching a low of $20.85 last September.

Shares closed Tuesday at $32.63, up 2%, but more gains are likely in store.

Things haven't always been easy. Diamond has had a rough time with internal controls, including being forced last August to pay $96 million in cash and stock to settle a securities lawsuit related to an accounting scandal. Then there was a $36 million writedown, which was due to its Kettle brand assets.

All told, Diamond, whose products include PopSecret popcorn, Kettle chips and Emerald snack nuts, wasn't always investors' best friend. Today the story has changed.

Even though the packaged food industry is still struggling with weak volumes and compressed margins, Diamond management has used a strong product mix to post modest gains in the U.S. and solid results in areas nations such as the U.K.

With signs of improvement seen within the sector, these shares can still be a delight. Investors would be wise to take a nibble here ahead of Diamond's fiscal third-quarter results, which are due out Thursday.

Observers are looking for 17 cents in earnings per share on revenue of $191.72 million, which would represent a year-over-year revenue increase of 3.7%. Earnings, meanwhile, are projected to grow 240% year over year.

Granted, that's an anomaly and reflects the depths from which Diamond has emerged with last year's poor results. But the company has nonetheless shown solid margin expansion, particularly in the second quarter when gross margins expanded 2.5 points year-over-year to 25.4%.

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