Lufkin Industries: Getting pumped

If you are ever called on to write a piece about vertical business integration, there is an interesting case in Lufkin, Texas. The firm provides oil well pumps, the gears to run them, the electronic systems to control them and the trailers to haul them.

Lufkin Industries (NASDAQ: LUFK) serves the heavy industry arena through three divisions. Its Oil Field segment manufactures, services and refurbishes oil field pumping units. It also provides computer control equipment for the units and operates an iron foundry to produce castings for new units. The company's Power Transmission segment provides gearboxes for industrial applications and makes parts for after-market service. Lufkin's Trailer segment manufactures and services various highway trailers for the freight-hauling market. The company operates primarily in the United States, Canada, Europe and Latin America.

The firm pleased investors last week, when it reported Q1 EPS of $1.17 and revenues of $148.10 million. Analysts had been expecting $1.05 and $146.1 million. Management also offered in-line guidance for Q2 and FY07 earnings.

LUFK shares popped on the news and are now forming a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

The brokerage community recommends the stock with one "strong buy" and expects a 19% average annual growth rate, through the next five years. The LUFK P/E ratio (12.52), PEG ratio (0.66), Price to Sales ratio (1.51), Sales Growth rate (11.02%), Operating Margin (17.00%) and Net Profit Margin (12.19%) compare favorably with industry, sector and S&P 500 averages.

Institutions own about 70% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $49.05 and $71.47. A stop-loss of $53.90 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.