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After the bell last night Pall Corp (PLL), a maker of filtration products, reported an outstanding second quarter. EPS was $0.64 on sales of $645.2 million, up 52% and 15.1% YoY respectively. That brought EPS results for the first 6 months of Pall's fiscal year to $1.25, up 28% YoY, on sales that increased 14% excluding currency impacts. These strong results caused Pall to raise its full year 2011 guidance to $2.80-$2.90, up substantially from its previous guidance of $2.48-$2.63 as well as 2010 EPS of $2.12. The backlog was up 20%, and gross margins increased to 51.5%. Shares of Pall had closed at $53.69, down 2.7%, but were advancing over 5% in after hours trade.

Pall provides filtration products to a wide variety of businesses. It is organized into two segments, Life Sciences and Industrial. The Life Sciences segment is further broken down into BioPharmaceuticals, Medical, and Food & Beverage. The Industrial Segment is broken down into Aeropower, Energy & Water, and Microelectronics. The Life Sciences segment is slightly larger than Industrials in terms of sales, but operating profit in the Life Sciences is much higher, due to higher margins. For Q2 Life Sciences had operating profit increase 22.4% to $83.7 million on sales of $334.2 million, driven by a 25% increase in Pharmaceuticals sales, 20%+ growth in consumables, and a more than doubling in systems sales. The Industrials segment had Q2 operating profit of $47.9, more than double last year's quarter. That was done on sales of $311 million, driven by 21% growth in Energy & Water sales and 26% growth in Microelectronics sales.

Pall was in the news earlier in the year on news the CEO Eric Krasnoff would be stepping down. A Credit Suisse analyst cited the departure of the CEO as a possible catalyst to Pall being acquired, seeing as the space has seen consolidation as of late. Millipore was acquired by Merck KGaA (OTCPK:MKGAY) last year for about $7.2 billion, after Millipore decided to put itself up for auction. Millipore was purchased for $107/share, and had reported that it earned $3.15/share in 2009 about a month before the deal price was announced. That translates to a sale price of 34 times earnings, and was 50% higher than when Millipore decided to start the auction. The Credit Suisse analyst raised the price target on Pall to $66, Roughly $10, or 17% higher than where shares are in the aftermarket. Given the growth rate the company is experiencing, I do not think management would sell the company for $66. I also do not see the Pall actively looking to pursue a sale, given how well the company is operating right now.

Even without a takeover, shares of Pall look attractive. The restructuring that management has done over the past few years is beginning to bear fruit, and gross margins have expanded from 46.8% in its 2006 fiscal year to 50.2% in fiscal year 2010, and look poised to continue their upward trend. The company had previously set an EPS goal of $3.67-$4.77 for FY 2013, but that was before increasing guidance this quarter, and was assuming a compound annual growth rate of 5.5%-8%. Expect that 2013 guidance to come up, along with a good amount of analyst upgrades. Based on the midpoint of the new EPS guidance, Pall will earn $2.85 this year, giving it a P/E of around 20 based on the after-hours move in the shares, well below the 34 P/E in the Millipore deal.

The company has raised the dividend seven years in a row, and currently yield 1.3%. Pall Corp is a company increasing sales, increasing profits, increasing gross margins, increasing its dividend, and increasing its share price. Given the growth trends and the price Millipore managed to get for its shareholders at auction, Pall shares at a P/E of 20 look like a bargain. With no signs of slowing down, shares look attractive up into the mid $70s.

Disclosure: I am long PLL.

Source: Higher Profits Filtering to Pall Corp.

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