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Looking for a company with exposure to the semiconductor, auto and aerospace industries? Then Mentor Graphics (MENT), Zacks Rank No. 1 (Strong Buy) should be on your buy list. Mentor Graphics designs, manufactures, markets and supports electronic design automation software. The software helps companies design circuit boards and integrated circuits.

Strong execution and business momentum

In its July quarter, Mentor posted record revenue, bookings, and operating income. In fact, bookings were up over 70% year over year and should be supportive to future sales growth. The favorable outlook is highlighted by a strong upward revision to FY 2015 (January) earnings per share estimates. The Zacks Consensus Earnings Estimate for FY 2015 is up 9.7% over the last 30 days to $1.46 per share. There was also a solid $0.03/share bump to FY 2014 EPS to $1.27.

Sales growth is expected to be healthy in the coming year. The Zacks Sales Consensus for FY 2015 sees sales rising 6.0% to $1.228 billion. The most recent analyst move was above consensus at $1.235 billion.

As the chart above displays, earnings estimates have been stair stepping higher in recent years, and estimates have made a turn higher in recent weeks. The stock has also posted a strong track record of positive surprises. The company has recorded a positive earnings surprise 12 out of the past 13 quarters.

On its website, Mentor proudly indicates that electronic car manufacturer Tesla Motors has standardized on the Mentor Graphics tool set for 12-volt electronic system designs.

Valuation

Valuation is acceptable, as Mentor trades at 16.3 times forward earnings, which is in line with its 10-year median. However, in the spirit of full disclosure the price to sales and PEG ratio are high relative to their 10-year medians at 2.43 and 1.63 respectively.

On August 22, the company increased its share buyback authorization and has $100 million available for purchases. It pays a small $0.045 quarterly dividend, and the return of capital is a positive dynamic. Free cash flow has risen in recent years and the dividend and buyback seem to imply confidence in the future outlook.

There is a short base

The short interest ratio is 5.39 down from the mid-August high of 6.33. However, it is well above the May low of 2.06 and near the one-year high. The short base suggests that some investors are willing to fade the strength of corporate profits, and may provide fuel for a rally. At the same time, institutional investors could be attracted to the strong backlog and upward revision to earnings.

The stock has posted a steady uptrend this year. A breakout above the $23.20 area could draw in momentum buying and put more pressure on shorts to cover.

In conclusion, Mentor may be the pick to help guide your portfolio to profits.

Source: Bull Of The Day: Mentor Graphics