July 27, 2009 - National Presto Industries Inc. (NPK-NYSE) and its subsidiaries manufacture and operate in three segments: Housewares/Small Appliance, Defense Products, and Absorbent Products.

The Defense Products segment manufactures precision mechanical and electro-mechanical products for the U.S. Department of Defense (DOD) and DOD prime contractors. Its products include training ammunition, fuses, firing devices, initiators, and medium caliber cartridge cases. This segment also performs load, assemble, and pack operations on ordnance related products.

What you've got here is a well-diversified, medium-sized, money making machine of a company. Earnings this year should be $7.50, well above the $6.45 registered in 2008. Next year, look for $8.50. There's only 1 analyst following the stock so it's still somewhat undiscovered by most investors. Market Cap is $517.5 million, and revenues totaled $448.2 million last year.

For the last 5 years, sales averaged an annual gain of 25% while earnings improved at an annual average rate of 29.5%. Going forward, the analyst sees revenues increasing annually by 8% with annual average earnings growth of 9.5%. Clearly, the fantastic increases of the last 5 years would be almost impossible to maintain, but these estimates are based on what the company works with now. With no debt on the books and almost $150 million in cash, management has plenty of flexibility to buy other companies or expand its current offerings.

The dividend is noteworthy here. It's payable once a year, in the first quarter. In 2005, it was $1.67. In 2006, $2.12, then $3.80 in 2007. Last year, it was $4.25. This year's payment was $5.55. It takes about 70% of earnings to pay it. The yield at current levels is 7.3%, if it pays the same rate next year as it did this year. Insiders own 30% of the stock and obviously enjoy the fruits of their efforts by paying a healthy dividend.

The current economic mess may be helping National Presto sales in its small appliances division. More people are staying home for meals, requiring more small cooking utensils such as fry pans and cookers. Revenues for the first 6 months have improved in all three groups, led by the Defense division which shipped increased amounts of ammunition to the Department of Defense.

With strong sales and earnings projected, investors have taken notice of NPK. While it suffered along with the rest of the market in last year's market meltdown (the stock went from $85.62 to $41.40 in only a few weeks), the stock has bounced back nicely, flirting with its all time high set last year at $85.62. The stock price chart has shown consistent growth from the beginning of 2003 when the stock traded at $25.90, topping out last year.

More numbers: Market Cap is $520.4 million. Forward P/E is 8.9. Price to Book is 1.86. Book Value is $41.43. Operating margin for the last 12 months was 14.63% while Profit margin was 10.19%. Cash per share is $21.72. There is no debt. Current ratio is 4.98. Beta is .81. There are 6.85 million shares outstanding with a float of 4.89 million. While the dividend declared for next year is $1.00, management has increased the dividend each year for the last 5 years and investors expect that to continue in 2010 (payable in the first quarter on a one time basis).

There's a lot to like at National Presto. The numbers are very encouraging and valuations appear attractive. Estimates for earnings and sales would suggest the future looks bright. But not as bright as the last 5 years when both were ramping at notable rates. No company can continue super growth for a long time. So for now, it looks like merely good growth is in the near future. Unless management decides to deploy some of its cash to new businesses or expand current ones. Then those estimates will have to be revisited and most likely raised.

Company Web site: www.gopresto.com

- Ted Allrich