Cpi Aerostructures Gears for Strong Fourth Quarter

• Merrimac Industries Inc (NYSE Amex:MRM) was mentioned in a note posted December 13, 2008. Six day after our call that the company was on the sell block the company announced it would be acquired .
     
• After an article on November 12, 2009, China Armco Metals (OTCBB:CNAM) subsequently had, at its high, gained 31% .
     
• Since mentions of Hong Kong Highpower Tech (NASDAQ:HPJ) and Amcon Distributing (NYSE Amex:DIT) in a November 2, 2009 article, at their highs, the stocks had gains of 264% and 29%, respectively.

In line with this theme, we believe three clues hint that Cpi Aerostructures (NYSE Amex:CVU) could report a rather significant 2009 fourth quarter.

1. Throughout 2009 Cpi has issued guidance, calling for net income of $3.9 million to $4.3 million and revenue of $42 million to $45 million. Using midpoint figures and the company's 2009 nine month financial results, the guidance implies earnings per share will increase 80.0% to $0.27. Sales would also rise 35.9% to $12.5 million.

2. In conference calls, the company has repeatedly stressed that if it believed it could not meet its guidance it would relay a message to Wall Street. Well, it is the beginning of the new year and management has not issued such a message, strengthening our confidence that the fourth quarter will be strong.

3. On January 14, 2010, a press release was issued stating that fourth quarter order flow had intensified.

What we don't possess is specific information on the company's 2010 forecast to be provided in conjunction with the 2009 year end results. We generally prefer to invest in companies that are capable of achieving consistent 30% EPS growth, so we will eagerly await the 2010 guidance. That being said, Cpi has offered additional clues indicating 2010 will be a year of growth:

1. In its 2008 fourth quarter financial release Cpi offered insight into its long-term growth goals in sales and net income growth:

"Using 2008 as the baseline, for the three-year period ending in 2011, we expect to achieve a 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%.”

2. The company offered broad bullish commentary regarding 2010 prospects:

“We expect 2010 to be another year of growth and we plan to issue our guidance when we announce results for the 2009 fourth quarter and year.”

The GeoTeam® had hoped the company could have been slightly more specific.

3. Per its third quarter financial report:

"Unawarded solicitations remain at a high level with open solicitations totaling a maximum realizable value of approximately $393 million."

If the company can confirm 2010 EPS growth of at least 30%, CVU may offer a compelling opportunity for both growth and value investors. The stock is trading at a P/E of 9.32 on 2009 analyst EPS estimate of $0.66 and near its book value per share of $5.92.

Investors also have to be cognizant of some risks:    

• There may be a tendency for CVU to report lumpy quarters at times, a situation we are hoping will change as the company grows.
     
• On September 17, 2009 CVU filed an S-3, enabling the company to raise $10 million. This could be dilutive or accretive depending on use of proceeds (although the company has expressed that accretive acquisitions are part of its overall strategy).

GeoInvesting.com Disclosure

Long CVU

You agree that you shall not republish or redistribute in any medium any information on the GeoInvesting website without our express written authorization. You acknowledge that GeoInvesting is not registered as an exchange, broker-dealer or investment advisor under any federal or state securities laws, and that GeoInvesting has not provided you with any individualized investment advice or information. Nothing in the website should be construed to be an offer or sale of any security. You should consult your financial advisor before making any investment decision or engaging in any securities transaction as investing in any securities mentioned in the website may or may not be suitable to you or for your particular circumstances.