CECO Environmental Corp. (CECE) reported another positive surprise in its third quarter, as earnings per share beat the Zacks Consensus Estimate by nearly 27%. This air pollution control technology company has been outperforming quarterly expectations for a while now, amassing an average beat of more than 21% in the past 4 quarters.

This Zacks Rank #1 (Strong Buy) appears to have potential for even more growth moving forward, given the major booking momentum from North America and international customers, along with its focus on cost-control measures and margin improvement.

Solid Third Quarter

On Nov 7, 2012, CECO Environmental Corp. reported third-quarter 2012 earnings per share of 19 cents, beating the Zacks Consensus Estimate by 26.7% and last year's earnings by 35.7%.

Revenues grew 0.5% year over year to $33.1 million, driven by a $1.1 million sales increase in the Engineered Equipment Technology and Parts Group (EET&P), offset by a $1.0 million decrease in the Components Parts Group (C/S).

Gross profit for the quarter increased $0.8 million or 8.2% to $10.5 million, compared with $9.7 million in the prior-year period. Gross margin for the quarter stood at 31.7% in 2012, compared with 29.5% in 2011. The increase in gross margin was primarily due to a shift to higher margin work in both the EET&P Group and the C/S Group.

Earnings Estimates on the Rise

The Zacks Consensus Estimate for 2012 increased 3.2% to 64 cents over the last 60 days, reflecting year-over-year growth of 24.8%. The Zacks Consensus Estimate for 2013 is up 1.4% to 75 cents over the last 90 days, suggesting a year-over-year increase of 18.1%.

Valuation Looks Reasonable

Currently, CECO Environmental is trading at a premium to its peers based on P/E, P/B and P/S. The premium valuation seems justified given the company's solid earnings growth prospects. Its earnings growth expectation of 13.8% over the next five years compares favorably with the industry average of 6.80%, indicating room for further expansion. Moreover, its return on equity (:ROE) of 22.8% is much higher than the peer group average of 1.6%.

The share price has increased at a higher pace than earnings over the last few years. Currently, shares are hovering around $10.00-$11.00. The consensus estimates for 2013 and 2014 are trending upward. The share price should increase at a similar or higher pace than the earnings estimate trend.

Based in Cincinnati, Ohio, CECO Environmental Corp. provides air-pollution control technology products and services worldwide. The company offers engineered equipment, cyclones, scrubbers, dampers, diverters, regenerative thermal oxidizers, component parts and monitoring and managing services. CECO Environmental Corp. has a market cap of $158.4 million.