Best-idea EDAC Tech (EDAC) reported excellent third-quarter results that exceeded our expectations. We are sticking with our conservative $10 per share fair value estimate and retaining our allocation in our Best Ideas portfolio.

As followers of Valuentum know, EDAC Tech has been one of the biggest generators of alpha in our portfolio and continues to be one of our largest positions (at about 10%)—our cost basis is just over $4 per share. We were particularly pleased with its third-quarter results, as management mentioned the quarter would be slightly weaker, on average, on its second-quarter conference call. However, the third quarter was far from that.

The firm’s top-line expanded an impressive 18%, while earnings per share came in at $0.19, which was significantly higher than our $0.12 estimate –income from operations was a record $1.8 million. The $0.19 number compares to a mere $0.02 in the same period a year ago. Profit expansion was driven by higher sales combined with a better product mix and increased operating leverage. The firm’s gross profit margin advanced to 17.8% of sales from 9.5% of sales in the same period a year ago. Importantly, EDAC Tech noted that backlog rose to $213.5 million at the end of the quarter, up from $168 million at the end of the second quarter and $133.6 million at the end of the third quarter of 2010.

Management noted that it expects the fourth quarter to be the strongest period of the year (in terms of sales) based on backlog and 2012 to be “another successful” year. All things considered, we’re expecting EDAC Tech’s stock price to converge to our fair value estimate ($10) in relatively short order.