Ceradyne Raises Guidance - Shares Climb, Maintain Low PE Multiple

Nov. 3.06 | About: 3M Company (MMM)

Ceradyne’s (CRDN) conference call Wednesday had several bits of good news. For one thing, the conclusion of the company’s probe into stock option practices allowed them to file their 10Q and avoid potential delisting.

More important, however, was a significant increase to earnings guidance:

Based on the strong third quarter reported today and the anticipated fourth quarter, we now feel that the 2006 guidance should be revised upwards to a sales range of $650 million to $660 million with an earnings range of $4.45 to $4.55 per diluted share.

Furthermore, we now believe that the 2007 guidance provided on June 5, 2006 of a sales range of $665 million to $680 million and an earnings range of $4.25 to $4.50 per diluted share should be revised upward to a sales range of $700 to $725 million with an earnings range of $5 to $5.15 per diluted share. This upward revision is based on non-binding discussions with the United States government, our current backlog of orders including our indefinite delivery indefinite quantity contracts which are not reflected on our backlog until we actually receive delivery orders, our improved efficiencies and expanded production capability in most Ceradyne defense and nondefense facilities.

Although the stock rallied sharply to close above $47, that still is a multiple barely above 9x next year’s earnings. Although investors are clearly skeptical that the company can generate much more growth (as we previously">have written previously), it is also hard to imagine the shares declining much farther until earnings actually do level out or decline.

CRDN 1-yr chart:

CRDN 1-yr chart