Top Five Fast-Growth Stocks: Ametek

Ametek, Diamond Offshore Drilling, DeVry, Balchem and American Ecology are all on top.
Author:
Publish date:

Each business day, TheStreet.com Ratings compiles a list of the top five stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publishes these lists in the Ratings section of our Web site.

This list is based on data from the close of the previous trading session. Today, fast-growth stocks are in the spotlight. These are stocks of companies that are projected to increase revenue and profit by at least 12% in the coming year and rank near the top all stocks rated by our proprietary quantitative model, which looks at over 60 factors.

In addition, the stocks must be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. Please note that definitions of revenue vary by industry, and this screen does not make adjustments for acquisitions, which can materially affect posted results. Likewise, earnings-per-share growth may be affected by accounting charges, share repurchases and other one-time items.

Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large underfunded pension plans.

Ametek

(AME) - Get Report

manufactures electronic instruments and electromechanical devices. The company has operations throughout the U.S. and in more than 30 other countries. Its electronic instruments segment manufactures advanced monitoring, testing, calibrating and display instruments for the aerospace, power and industrial markets worldwide. The electromechanical segment produces highly engineered electromechanical connectors for hermetic (moisture-proof) applications, specialty metals for niche markets and brushless air-moving motors, blowers and heat exchangers. The products are used in floor care and other specialty applications.

Ametek has been rated a buy since November 2002. The company's strengths include its consistent revenue, earnings per share (EPS) and net income growth, as well as a solid stock performance. In addition, Ametek's minimal exposure to the housing and automobile markets could insulate it from the sluggish U.S. economy.

For the first quarter of 2008, the company reported a 30% year-over-year increase in earnings, led by operational improvements and strong revenue growth of 21%. Continuing its pattern of EPS growth over the past two years, the company again reported improved EPS to 62 cents in the most recent quarter from 48 cents in the first quarter of 2007. Net income grew to $66.4 million from $50.9 a year ago. Furthermore, operating cash flow increased 39% to $77 million. Additionally, the company paid a quarterly dividend of 6 cents per share on March 31.

Going forward, Ametek estimates revenue for the full year 2008 to increase in the high teens on a percentage basis, while earnings are estimated to be in the range of $2.47 to $2.52 per share. Management also expects earnings for the second quarter to be about 61 cents to 63 cents a share, an increase of 13% to 17% over last year's second-quarter results. However, these results could be negatively affected should the company fail to successfully integrate its recent acquisitions. Other risks include the price and availability of raw materials and changes in the competitive environment.

Diamond Offshore Drilling

(DO) - Get Report

engages in the contract drilling of oil and gas wells. The company's fleet of 30 submersibles enables it to offer a range of services in various markets worldwide, including the deepwater, harsh environment, and conventional semisubmersible markets. Diamond also owns 13 jack-up rigs, which are mobile, self-elevating drilling platforms equipped with legs that are lowered to the ocean floor until a foundation can be built to support the platform. Finally, Diamond also has one drillship, the Ocean Clipper, located offshore Brazil.

We have rated Diamond a buy since June 2005, on the basis of various strengths displayed by the company. Boosted by solid sales growth from its Contract Drilling business segment, Diamond's revenue surged 29% year over year to $666.7 million in the first quarter of fiscal 2008. First-quarter earnings rose 30%, fueled by a rise in daily rates for the company's deepwater rigs. Net income for the quarter increased to $290.6 million, or $2.09 a share, from $224.2 million, or $1.64 a share, a year ago.

In keeping with its policy of considering the payment of special cash dividends on a quarterly basis, the board of directors recently declared a special cash dividend of $1.25 per share of common stock in addition to a regular cash dividend of $0.125 per share of common stock. Both dividends are payable in June 2008. Finally, Diamond's debt-to-equity ratio is very low at 0.17, implying that debt levels have been successfully managed.

While lower than a year ago, Diamond's gross profit margin continued to remain relatively high at 62%. However, the company's net profit margin of 37% significantly outperformed against the industry. Furthermore, the company has demonstrated a pattern of positive earnings per share growth over the past two years, and we feel that this trend could continue.

Although the company may harbor some minor weaknesses, we feel that they are unlikely to offset the company's strengths. Instead, we feel that the slowdown in the U.S. economy and weak job data pose larger risks as they may put pressure on the demand for oil and gas. This could in turn disturb activities related to exploration and production, affecting the number of rigs that are operational in the market and potentially affecting Diamond's future profitability.

DeVry

(DV)

is an international higher-education company that offers career-oriented undergraduate and graduate programs in technology, business, and management. Classes are offered at a number of locations, as well as through DeVry University Online.

The company has been rated a buy since January 2007. DeVry's strengths can be seen in its impressive record of EPS growth, compelling improvement in revenue and a solid financial position. For the third quarter of fiscal 2008, DeVry reported EPS of 53 cents, compared with 32 cents a year ago. This increase continues the company's demonstrated pattern of EPS growth over the past two years, a trend that we feel should continue. The company's third-quarter net income of $38.3 million represents an increase of 67% when compared with the same quarter last year. DeVry also has no debt to speak of, and its revenue rose 18% for the second quarter.

The company disclosed on May 19 that federal investigators have launched an investigation into the company's recruitment practices, and that management is cooperating fully with this probe. While we believe the stock is a strong one on the basis of its quantitative merits, this is a situation that bears watching.

Balchem

(BCPC) - Get Report

develops, manufactures and markets specialty performance ingredients and products for the food, feed and mechanical sterilization industries. Balchem produces choline products for both human and animal consumption. Choline, a vitamin-B complex, plays a vital role in the metabolism of fat and the building and maintaining of cell structures. Choline deficiency can result in reduced growth and perosis (a disease characterized by a deformity of the leg joint) in poultry and fatty liver, kidney necrosis and general poor health in swine, among other symptoms.

In humans, choline is recognized as playing a key role in the structural integrity of cell membranes, the processing of dietary fat, reproductive development and neural functions such as memory and muscle function. Balchem also produces encapsulated performance ingredients for use throughout the food and animal-health industries in end products such as baked goods, refrigerated and frozen dough, processed meats, seasoning blends, and confections. These performance ingredients are used to enhance nutritional fortification and improve shelf life of prepared products.

Our buy rating for Balchem has not changed since June 2003. The company reported record quarterly results in net sales and net earnings for the first quarter of fiscal 2008. Balchem achieved net sales of $56.9 million, reflecting a 35% year-over-year increase. Net earnings increased 35% year over year to $4.6 million. As a result, the company's net earnings per share increased 32% to 25 cents a share from 19 cents a share in the year-ago quarter.

Management reported that the integration of several acquisitions made during fiscal 2007 have gone well, and stated that the first-quarter results did not yet reflect the company's full expectations for those acquisitions. Additionally, management noted again that rising raw-material costs are expected to remain a challenge for Balchem in the near term.

While the company has taken pricing steps to counteract the effects of these increased input costs, the actions taken in the first quarter did not offset all the cost increases, primarily because of timing. Overall, management expects the remainder of fiscal 2008 to continue to bring double-digit increases in sales and earnings. Bear in mind, however, that global economic issues could affect the company's results.

American Ecology

(ECOL) - Get Report

is one of the nation's oldest providers of radioactive, hazardous and industrial waste management services. The company's customers are commercial and government entities such as nuclear power plants, medical and academic institutions, steel mills, refineries and chemical production facilities. A significant portion of revenue from operating disposal facilities comes from discrete, one-time clean-up projects -- which may span weeks, months, or years depending on project scope.

American Ecology's non-operating disposal facilities segment consists of facilities that no longer receive waste materials but continue to be monitored and maintained as part of the treatment of previously received waste materials. Other services include such services as waste stabilization, encapsulation and chemical oxidation.

We have rated American Ecology a buy since October 2005. Strengths such as revenue growth, a largely solid financial position, and a notable return on equity influenced this rating. For the first quarter of fiscal 2008, American Ecology's revenue rose by 18.6% year over year. This growth appears to have trickled down to the bottom line, improving earnings per share (EPS) by 18.5% over the first quarter of 2007. In fact, the company has demonstrated a pattern of positive EPS growth over the past two years. A slight improvement in return on equity can be seen as a modest strength for the company. Finally, although total debt increased slightly year over year, it remains at an almost negligible level.

Looking ahead, the company anticipates fiscal 2008 earnings to be in the range of $1.17 to $1.23 per diluted share. This estimate is based on the company's record first-quarter results and its strong outlook for the second quarter. Additionally, we feel that American Ecology's strengths outweigh the fact that the company currently shows weak operating cash flow.

Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe that a rating alone cannot tell the whole story and that it should be part of an investor's overall research.

This article was written by a staff member of TheStreet.com Ratings.