ASX stock Codan Ltd (ASX: CDA) is back in focus on Wednesday after releasing a trading update before the market opened.
The share price is up 13.39% to $41.25 at the time of writing, continuing a strong run that has been building for months.
It has gained roughly 25% in the past month and is now up more than 160% over the past year.
Let's take a closer look at what's driving the move.
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Earnings outlook lifted on strong second-half
According to the release, Codan said it has been trading above expectations in the second-half of FY26.
This has prompted management to lift its full-year earnings outlook.
The company now expects earnings before interest and tax (EBIT) of about $235 million, with net profit after tax (NPAT) around $170 million.
That represents growth of more than 60% compared to FY25, which is well above what was previously expected.
Management noted that the upgrade is being driven by stronger performance in the communications division, where demand has remained solid.
Communications division doing the heavy lifting
Codan had previously guided to revenue growth of 15% to 20% for FY26, but now expects to land at the top end of that range.
Growth is being supported by ongoing demand from defence customers, particularly in areas linked to unmanned systems.
There is also continued demand for software-defined radios, which are being used across a wider range of applications.
At the same time, margins are starting to lift as more volume comes through.
Codan is now expecting communications segment margins to reach 30% in FY26, which is earlier than previously flagged.
That compares to a margin of around 26% in FY25, which shows how much it has improved.
Minelab still contributing in the background
While the communications division is leading the current upgrade, Codan's Minelab business is also tracking well.
Revenue from Minelab is running ahead of the strong first-half, helped by a favourable gold price and recent product releases.
The ASX stock also highlighted solid demand across key markets, which has supported sales numbers in the second-half.
Foolish takeaway
Codan is doing a lot right at the moment.
Demand in communications is holding up, margins are improving, and earnings are moving higher as a result.
That has been enough to keep the share price trending in the right direction over the past year.
But after such a strong run, I would be a bit more patient from here.
The business still looks in good shape and the momentum could carry on, but I'd wait for a pullback before getting involved.
