Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Kewaunee Scientific Corp. - Recipe For A Low Float Rocket

|Includes: Kewaunee Scientific Corporation (KEQU)

Recently I have witnessed several low float stocks that I have entered rapidly appreciate in price. LIVE, which I picked in the low $3's on January 23, exploded this week to hit $15.57. It went from the $5's to $15's in 7-8 trading days. Several weeks ago, another low floater, ROSG, which I originally tweeted about my entry in the $2-$4 range, hit $23 in 7 trading days.

I have found the next low float stock that I think can rapidly appreciate and it has strong substance to make such a move, stronger substance than LIVE did at the time. Kewaunee Scientific Corp. (NASDAQ:KEQU) is a Nasdaq stock with a float of 1.8mm shares, 2.6mm shares outstanding and a book value of $12.27 after this recent quarter . KEQU closed at $11.43 on Friday. It is trading $0.84 below book value yet it has a major catalyst besides that.

KEQU has experienced a major turn around in profitability due to the Company reaping the rewards from "cost savings initiatives commenced earlier in the year". They reported monster EPS of $0.49 per share this quarter vs $0.10 per share in the same quarter last year.

KEQU has record backlog and the CEO is optimistic about this coming year. "The order backlog increased to a record $86.2 million at April 30, 2012, up from $65.7 million at April 30, 2011, with both domestic and international orders contributing to the growth."

"Looking forward to fiscal year 2013, I remain cautiously optimistic," Mr. Shumaker continued. "My optimism is based on a number of factors. On the domestic front, we enter the year with a strengthened and expanded dealer network, which we believe will result in increased sales and earnings. We are also realizing lower operating costs from our cost savings initiatives put in place over the past year. On the international front, we have also strengthened and expanded our dealer network, better positioning us to take advantage of the growing number of laboratory project opportunities in Asia and the Middle East. Furthermore, both domestic and international operations will benefit from our record order backlog.

KEQU has strong sales prospects with a record backlog and the strongest point here is that they have successfully changed their cost structure impacting profitability. When I look at their sales I do not see seasonality in the quarters . Therefore I feel comfortable in annualizing this quarters EPS as the CEO said he is optimistic for the coming year because they are realizing the benefits from cost cutting measures.

That would put KEQU on an EPS run rate of $1.96 if you assume they will not have any sales growth. That assumption seems unlikely to me since the backlog is at a record high and the CEO said they will have increased sales and earnings. The industry they are in has an average P/E of 16.8 .

If you annualize the EPS this quarter due to the reasons above (even though that is conservatively assuming no sales growth contrary to the CEO's statements) and take it at the industry average P/E, that would result in a KEQU share price of $32.93. KEQU closed at $11.43 on Friday, $0.84 below it's book value.

Recipe For A Low Float Rocket

1) Low Float - 1.8mm

2) Great Current Earnings - $0.49 EPS this Quarter, Trades Below Book Value

3) Great Future Prospects - Record Backlog, Optimistic CEO Comments, Improved Cost Structure

4) Undervalued/Under followed Stock - Annualize Current Quarter EPS at the industry average P/E would give KEQU a value in the $30's.

I am long KEQU with an average near $11.

Low float stocks can be volatile and are not for large positions in my opinion.

Disclosure: I am long KEQU.

Additional disclosure: Average price around $11.