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EDAC Tech (EDAC) posted fantastic second-quarter results Wednesday, with revenue jumping 21% to a record $26.5 million and adjusted net income advancing nearly 78% from the same period a year ago. Adjusted diluted earnings per share came in at $0.31, up 63% from the prior-year quarter. Adjusted net income of $1.739 million in the quarter accounts for the tax-adjusted impact of $450,000 in acquisition-related expenses. Reported net income was $1.442 million, or $0.26 per share. On an adjusted basis, the firm has earned $0.54 per share during the first half of the year and is on pace to beat consensus estimates of $0.93 per share and our previous 2012 bottom-line forecast of $0.98 per share (which was raised from $0.95 per share after the firm's strong first-quarter showing). We are raising our 2012 adjusted earnings-per-share forecast to $1.05 and our 2013 earnings per share forecast to $1.35 (was $1.30). We maintain EDAC Tech is one of the most, if not the most, undervalued firm in the aerospace supply chain.

Management is notoriously conservative with giving future guidance (as it did again on its conference call), which may be stemming some new buying interest today despite the fantastic quarter. As an example, management guided the Street to high-single-digit revenue expansion in its first quarter this year and then posted 19% organic top-line growth for the period. We think such large outsize top-line performance will be the case for the third and fourth quarters and remain confident EDAC Tech will be well north of $100 million in sales for 2012.

We were not only impressed with the firm's top-line expansion but margin performance was nothing less than excellent. The company's adjusted operating margin jumped to 11.1%, roughly 320 basis points better than the 7.9% mark posted in the year-ago period. We continue to expect further margin expansion through the course of the year, despite some headwinds related to the integration of its recently-purchased Cheshire manufacturing facility. Importantly, we think CEO Pagano "has learned his lesson (from the conference call)" and is only pursuing business that will drive higher company-wide margins as throughput advances. Plus, by acquiring EBTEC Corp, a former outsourcing partner, the company by definition will capture higher margins on its revenue stream. We continue to expect margin convergence to the levels achieved by other more pristine operators such as Precision Castparts (PCP) during the course of the coming commercial upswing. Aircraft deliveries at the commercial airframe makers, Boeing (BA) and Airbus (OTCPK:EADSY), continue to expand thanks to rate increases and new product rollouts - the 787 Dreamliner. Due to the size of Boeing's and Airbus' backlogs, delivery expansion will not slow for some time, despite order trends moderating a bit.

EDAC Tech's backlog came in at $304.3 million at the end of the second quarter, which was a slight downtick sequentially, but still up from $168 million at the end of last year's quarter. Importantly, CEO Pagano mentioned on the call that Pratt & Whitney, a division of United Tech (UTX), is looking at EDAC to be a preferred domestic supply chain partner for its geared turbofan for an LTA (long-term agreement) between "$50 million to several hundred million" dollars. Pagano cites a high degree of confidence that such a deal will be struck within the next couple quarters. A deal of this magnitude will surely add to the company's burgeoning backlog, which has experienced the greatest growth of any commercial aerospace supplier during the past several years.

All things considered, EDAC Tech is trading at about 10 times our estimate of 2013 earnings on tremendous revenue and profit expansion. We continue to expect the shares to nearly double from today's levels. They have already tripled from when we first highlighted the company as one of our best ideas.

Source: EDAC Posts 2Q Adjusted EPS Of $0.31, Expects Huge Pratt Order In Back Half

Additional disclosure: Some of the firms mentioned in this article may be included in our actively-managed portfolios.