Dynamic Materials (NASDAQ:BOOM) is a leader in explosion-weld cladding, a welding process that uses controlled explosive charges to bond different metals together forming plates resistant to corrosion. The product is branded and marketed as Detaclad for application in a variety of heavy equipment and process manufacturing industries, such as oil and gas, power generation, and shipbuilding.
We initiated coverage of Dynamic Materials based on its growing dominance of the metals cladding market. Strong cash flow generation and a pristine balance sheet provide resources for future growth initiatives.
Dynamic Materials earned $16.3 million in net profits on $101 million in sales of explosion-weld clad metals and welding services in the twelve months ending September 2006. This represents year-over-year growth in sales of 27% and a profit margin of 16.1%. The Company has been successful in growing backlog in each of the last six years and revenue has followed. The momentum continues to build with record monthly bookings of $20 million in December 2006, and appears to have ended 2006 with a record backlog in excess of $60 million.
We used an assumption of 20% year-over-year growth in 2007 and 15% in 2008. This produced sales estimates of $124.0 million and $142.6 million in 2007 and 2008, providing EPS of $1.62 and $1.86, respectively.
BOOM shares are rated Buy based on the ability of the Company to produce profits and healthy demand for its products. Nonetheless, our trading guide suggests strategic accumulation of shares at current prices with more aggressive buying if the stock pulls back. Although our fundamental valuation of the Company is more generous, our target price is $35.00. We expect quarterly earnings reports to continue as the primary catalysts for the stock price. Stability in macroeconomic conditions that appear to be shaping up for 2007 could lure investors back to industrial stories like that of BOOM.
BOOM 1-yr chart
Disclosure: Author has no position in BOOM.