|Written by GSCR Staff|
|Wednesday, 08 April 2015 06:02|
March Madness is over but the start of baseball and The Masters should fill the void in the short term.
Speaking of March Madness, the market had a nice rebound Monday as there seems to be a renewed appetite for stocks. One of the big stories Monday was Tesla Motors, Inc. (NASDAQ – TSLA) shooting up over 6% on strong sales figures reported last Friday. We have been bullish on green energy this year. Additionally, as we mentioned in this week’s Goldman Guide the strength of the U.S. dollar should help small cap domestic stock with little or no FX exposure, i.e. a primarily domestic consumer base. With these two factors in mind we may have found a nice play.
Calling today’s pick, Federal Signal Corporation (NYSE – FSS- $16.22) ‘green’ stock maybe a little of a stretch, but its industry category is pollution and treatment controls so it caught our eye. The oldline company designs and manufactures a suite of products and integrated solutions for municipal, governmental, industrial, and commercial customers primarily in the United States, Europe, and Canada. It operates in three segments: Environmental Solutions Group, Safety and Security Systems Group, and Fire Rescue Group.
The Environmental Solutions Group manufactures and supplies a range of street sweeper vehicles, sewer cleaner and vacuum loader trucks, hydro-excavation trucks, and water blasting equipment under the Elgin, Vactor, Guzzler, and Jetstream brand names. The Safety and Security Systems Group provides campus and community alerting, emergency vehicles, first responder interoperable communications, industrial communications, and command and municipal networked security systems. This segment sells its products primarily under the Federal Signal, Federal Signal VAMA, and Victor brand names. The Fire Rescue Group offers telescopic and articulated aerial platforms under the Bronto Skylift brand name for fire departments, industrial fire services, electric utilities, and maintenance rental companies for applications, such as fire fighting and rescue, transmission line maintenance, and installation and maintenance of wind turbines.
Below is the 1-year chart for FSS which illustrates that the stock trades well above its 200-day EMA.
FSS 1 Year Chart – 200 Day EMA
Another technical metric is the low short float just over 1%. On the fundamental side the forward P/E of 14 is comfortably below the trailing P/E of 16 and the 5-year PEG ratio is an ultra low 1.05. An Enterprise Value/EBITDA value just over 9 is also a nice check mark as well. Finally, the Company has a majority of its business exposure in the U.S. market.
In early March, Federal Signal reported 4Q14 operating income that was up over 44% from 4Q13 at $31 million and net income is slated to grow by about 10% this year. Additionally, the Company reported announced a strategic partnership with Everbridge to further expand its critical emergency communication products and services.
We think the climb continues for FSS. Trading just 7% below its 52-week high, we look for the $19 level by mid-3Q15.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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