Dynamic Materials' Bird In Hand: Backlog

Dynamic Materials' (BOOM) year-end backlog points to another record year. The Company ended the year 2006 with record fourth quarter sales of $35.7 million and a record backlog of $68.8 million.

Completion of a significant order for a refinery helped drive sales to a record $35.7 million, well above our estimate for $26.0 million and the consensus estimate of $28.6 million.

Gross margin in the quarter was 40.7% compared to 31.5% in the same quarter a year ago and 33.4% in the previous quarter. The strong results reflected excellent momentum in capital spending for industrial plant expansion and renovation and continued market interest in explosion clad metals. The Company reported $68.8 million in backlog at the end of December 2006, which is expected to be worked off within a year.

The strong cash flows in the year put a shine on the Company’s balance sheet. Dynamic Materials ended the year with $21.0 million in cash and $57.6 million in equity. Debt of $400,000 is negligible. Resources are more than sufficient to complete the Company’s current plant expansion program. Management reiterated guidance for 20% sales growth in 2007. Backlog at the end of December 2006 was reported as $68.8 million and is expected to be worked off within the year. Accordingly, we have increased our sales estimate to $136.0 million (from $124.0 million), but acknowledge that even that higher figure could be conservative. Our new EPS estimate is $1.90 (from $1.62).

We raised our six-month target price to $38.00 (20 times our 2006 EPS estimate of $1.90). The stock remains one of the best ideas in our coverage universe as we believe BOOM could earn a valuation as high as $47.50 in the next year or so. The first quarter could present a bump in the road, as we expect sequentially lower sales and earnings.

The author of this article has a buy recommendation on, but no direct financial interest in BOOM shares.