Graham Corporation: Ready to Grow

Graham hosted an investor and analyst day at the company’s headquarters in Batavia, New York, following the recent completion of a major expansion program at the site. Graham’s presentation focused foremost on the improved position of the company (after a multiyear period of internal investment) and its commitment to achieving management’s previously stated goal of doubling sales to $200 million and driving material earnings growth over the next several years. While a number of initiatives (especially in the power and navy businesses) continue and the timing of market opportunities is always a key variable, Graham’s confidence in its position and its future growth has never been greater, in our view (we expect 30% earnings growth over the next two fiscal years). With Graham shares trading at 17.1 times our unchanged fiscal year 2016 EPS estimate of $1.70, we believe the current share price offers a favorable risk/reward profile and an attractive entry point for small-cap investors looking for a differentiated way to play growing energy infrastructure investment globally. We reiterate our Outperform rating on shares of Graham.

Graham reiterates its commitment to doubling sales to at least $200 million. At its first investor and analyst day in September 2012, Graham stated its goal of doubling sales to at least $200 million at the top of the next cycle. Two years later, the company reaffirmed this goal, but with two additional years of internal investments and better understanding of this cycle’s dynamics—including the slow power market recovery, pauses in international markets, and the length of the current North American energy market growth cycle—Graham expressed a greater level of confidence in achieving its goal and offered a time frame (over the next three to five years) in which it expects to double sales. This was the first time to our knowledge that management provided a time frame for achieving its goal of $200 million in sales, which if reached and with benefits from expected pricing and operational leverage could result in $2.50 to $3.00 in earnings per share (up from an expected $1.30 in fiscal year 2015).

Graham Corporation: Ready to Grow was last modified: October 26th, 2014 by Seth Talluto

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