Comp for Graham (GHM) Shows that Stock Still Has Upside

In Barron's this week, Art Samberg recommended Foster Wheeler (FWLT), as a top stock pick. What is interesting is that this is, I think, one of the best comps for valuing Graham (GHM). Based on Art's comments, it would therefore seem that Graham (GHM) should be trading at about $30-$35, assuming  $1.35 per share in earnings this year.   

Art explains (about FWLT):

"Foster Wheeler is also in engineering, construction and energy infrastructure. The company did some dumb things in the late 'Eighties and 'Nineties. They design global power systems and probably have put in place more than 50% of the world's steam generators. They were founded in 1927. The company doesn't disclose project economics and it's hard to make estimates. It's all about the gross margins embedded in the backlog. The balance sheet is getting delevered. For 2005, Foster Wheeler will earn $1.40. This year, earnings will be anywhere from $1.75 to $2.50. In '07 they will be anywhere from $2.50 to $5. The stock is $38, and my target is $100."

So basically, Art is saying that FWLT should trade at about 22X 2006 earnings and about 25X 2007 earnings (using the midpoint of estimates - or $3.75). Using my per share estimates for Graham of $1.35 EPS in the current fiscal year and $1.75 next year, implies a target price for Graham of between $30-$40. If Graham beats expectations, therefore, the stock could conceivably rise another 50%-100% this year. We'll find out this coming Wednesday.