Cpi Aerostructures Inc (NYSE AMEX:CVU)

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)