Cpi Aerostructures (NYSE AMEX:CVU)

Second Quarter 2010 vs. 2009

• Revenue increased 10% to $12,544,625 from $11,437,691;
• Gross margin was 26.7% compared to 24.8%;
• Pre-tax income increased 31% to $1,826,254, compared to $1,389,489; and,
• Net income increased 33% to $1,205,254 or $0.18 per diluted share, compared to $903,489, or $0.14 per diluted share. Diluted earnings per share were calculated on 8.7% more shares in 2010 second quarter vs. 2009 second quarter.

Reaffirms Long-Term Guidance

Mr. Fred added, “We are again reaffirming our long-term guidance which is based on our expectation that our three major long-term production programs (A-10, E-2D and G650) will be in full scale production and producing consistent significant revenue during 2011. For 2011 we expect that revenue will be in the range of $78 million to $81 million, with resulting net income in the range of $8.9 million to $9.5 million. Using 2008 as the baseline, we expect a three-year compound annual growth rate for revenue in the range of 30% to 35%, with a resulting compound annual growth rate for net income in the range of 50% to 60%.”

“Based on results for the first half of the year and expectations for a strong second half, we are confident that we will reach our 2010 guidance which calls for revenue to be in the range of $48 million to $51 million, with resulting net income in the range of $4.3 million to $4.8 million.”

Raises $3.5 Million through Registered Direct Offering

Mr. Fred concluded, “As previously announced, in the second quarter of 2010 we completed a registered direct offering raising $3.5 million in net proceeds through the sale of 500,000 shares of our common stock. As a result, we strengthened our financial position in preparation for continued growth and enhanced the potential liquidity of our stock.”

2008 Year end comments:

“As previously reported, our 2009 new contract awards approximated $23.4 million. Of this amount, approximately $10.6 million, $6.9 million and $5.8 million were government prime contract awards, government subcontract awards and commercial subcontract awards, respectively. Although this total was well below contract awards for 2008, orders in the fourth quarter of 2009 were significantly higher compared to the previous quarters of the year. From the start of the year through March 15, 2010 we have received a total of $3.6 million in new contracts, compared to $2.5 million in the same period last year. We look forward to additional new orders from existing contracts as well as from the unawarded solicitations of approximately $270 million that we have bid on as of March 15, 2010.”

Mr. Fred concluded, “As previously announced, based on the visibility we currently have, we project that 2010:

• Revenue will be in the range of $48 million to $51 million,
• Net income in the range of $4.3 million to $4.8 million.

It is our expectation that our three major long-term production programs (A-10, E-2D and G650) will be in full scale production and producing consistent significant revenue during 2011, and we therefore project that 2011:

• Revenue will be in the range of $78 million to $81 million,
• Net income in the range of $8.9 million to $9.5 million.

 Additionally, using 2008 as the baseline, our 2011 guidance affirms our expectations for a three-year compound annual growth rate for revenue in the range of 30% to 35%, with a resulting compound annual growth rate for net income in the range of 50% to 60%.”

Source: Business Wire (March 23, 2010)

See New GeoWire Article.

Based upon the year-to-date results and our expectations for the fourth quarter, we confirm that we will achieve our 2009 guidance, which calls for revenue in the range of $42 million to $45 million, and net income of between $3.9 million to $4.3 million. We are fully cognizant of the fourth quarter results that are required to meet these targets, and with approximately seven weeks left in our fiscal year, we are confident of our ability to achieve these results.”

Source: Business Wire (November 10, 2009)

Valuation Scenarios

Added to GeoBargain List on February 4, 2009. ($5.00). 

Data Inputs:

Fiscal Year Ends in December
2008 EPS: $.42

Long-Term (12 Months Forward) Valuation Scenarios

Peg Ratio Analysis - Common rule of thumb that PEG ratio should be less than 1.0

^aThe above forecasts reflect the Company's current and preliminary views and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.

^b CPI Aerostructures did not provide EPS guidance. The GeoTeam® calculated an implied EPS figure using the current outstanding share count of 6,250,021.

July Investor presentation available for Cpi Aerostructures.

Highlights:

1. On track to achieve 2009 guidance
2. Long term visibility
3. $360 million in award solicitations
4. Management expects margins to significantly improve

Cpi Aerostructures shares have been under selling pressure today.  The company reported 2009 first quarter results this morning. EPS was $.09, up nearly 30% from the same period last year. 

 Investors seem to be focusing on two parts of the release:

• Due to lower margins, EPS was sequentially down from 2008 fourth quarter EPS of $0.15.
  
• New orders totaled $4.5 million compared to $10.7 million, causing some investors to possibly question previous financial guidance information.

The company clearly addressed both of these issues in their conference call.

• Reduced margins were the result  of "additional costs incurred in the early stages of new programs related to customer changes to engineering and design requirements."  This is not an uncommon situation for Cpi Aerostructures. The company was very specific in confirming that margins will improve to historical levels as they progress through 2009.
  
• The company made it very clear that, their previously issued financial guidance does not give much weight to new order bookings.  It mainly reflects long-term contracts that the company has already won, giving them a high degree of visibility for the next three years.   Also, their are significant outstanding orders available for bids ( $360 million).

The company was very adamant that, as it currently stands, their previous guidance is still in tact.

One more note:  The company stated they intend to aggressively pursue investor awareness activities.

The GeoTeam® suggests that current and prospective investors listen to the conference call replay.   In the opinion of the GeoTeam®, the call was very bullish.  The GeoTeam® added to its long position on the stock's pull back.

Valuation Scenario Update:

Data Inputs: (As of March 27, 2009)

Short Term  Scenarios

Long Term (12 Months Forward) Scenario

Peg Ratio Analysis (Aggressive):  Common rule of thumb that the P/E should equal the future EPS growth rate:

These scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions

Fourth Quarter 2008 Financial Table Update

Full Year 2008 Financial Table Update

Valuation Scenarios:

Data Inputs: (As of February 12, 2009)

Short Term  Scenarios

Long Term (12 Months Forward) Scenario

Peg Ratio Analysis (Aggressive):  Common rule of thumb that the P/E should equal the future EPS growth rate:

These scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions

Source: Business Wire (November 10, 2008)

New Geo feature: The GeoTeam™ does not limit its research to just Asia.  We will also be including some commentary on stocks based in the United States.

Considering a company in the defense sector in the face of an Obama administration may seem unwise.  However, the the GeoTeam® believes that there are reasons to take a closer look at CVU.

It might be possible that the Obama administration poses opportunities to the company.  There is reason to speculate that the administration will opt to use more of its defense budget for repair and maintenance rather than new equipment purchases.  A good deal of CVU's business addresses repair and maintenance issues.

Competitive Advantage

• CVU qualifies as a ‘‘small business’’ in connection with U.S. government contract awards, allowing them to compete for military awards set aside for companies with this small business status.  

• CVU also can pursue smaller contracts that larger firms tend to ignore.

CVU Revenue Opportunities: Prime Contractor vs. Subcontractor

• As a prime contractor the company bids directly on projects.  When acting as a prime contractor the company's exposure to larger projects is limited because of its size and the fact that it may have to compete against larger firms.

• As a subcontractor CVU receives orders from larger prime contractors such as Northrop Grumman Corporation and Lockheed Martin Corporation. By acting as a subcontractor the company can gain access to parts of larger projects that it would not be able to obtain as a prime contractor.

CVU has been increasing its efforts to grow its subcontractor business which is becoming a significant piece of their growth picture.  As of the end of 2007, government subcontracted business comprised 30% of the CVU's revenue, leaving more room for growth.

CVU has also been increasing its penetration into the commercial market, typically a very small portion of their business.  Even with a slowing economy these efforts can pay off as they have little to lose and much to gain.

What does it  is all mean?

• "By increasing our customer base, we have positioned our company to take advantage of additional market opportunities and reduce the impact of the slowdown in government contract awards and releases."

Notable bullish company commentary from the Third Quarter Press Release and SEC Filings 

• "We are on track to achieve the best revenue year in our history of approximately $35 million, a 25% increase over 2007, and net income of approximately $2.6 million, a year-over-year increase of 37%.”

• As of October 31, 2008, total year-to-date awards amounted to $51.5 million, compared to $18.9 million for the same period last year, a 172% increase.

• Year-to-date contract awards have already surpassed 2007 total awards of $37.7 million.

Growth At a Glimpse:

• Third quarter EPS grew 55% to $0.14 .

• The company issued 2009 guidance.  The midpoint net income guidance for 2009 is $4.1 million, which implies EPS of  $.68 .

• The company states that it is on track to achieve a three year annual EPS compounded growth rate of 50% to 60%. 

• The stock is selling at a P/E of only 16 on trailing EPS and an 8 P/E on the implied 2009 EPS guidance.

Established a position

Sources:

Business Wire (November 10, 2008)
Sec Form 10Q ( September 2008)
Sec Form 10K (December 2007)

Guidance Update: 

Mr. Fred continued, "We are able to reaffirm our 2009 guidance which calls for revenue to be in the range of $42 million to $45 million, with resulting net income in the range of $3.9 million to $4.3 million. Additionally, using 2008 as the baseline, for the three-year period ending in 2011, we expect to achieve a compounded annual growth rate for revenue in the range of 30% to 35%, with a resulting compounded annual growth rate for net income in the range of 50% to 60%."

Source: Business Wire (November 4, 2008)