Fuel Systems Solutions Is Due for a Nice Bounce

Despite a grand slam quarter, Fuel Systems Solutions (FSYS) still saw the air let out of its sails, as its stock gave back the entire 60% it gained just after posting monster third quarter earnings. The shares had rallied from $25 to nearly $40 in a span of just two trading days. The drop in the share price enables one to purchase shares, just as if the blow out quarter never transpired, providing more bang for the buck for investors wishing to purchase the shares without having to chase them higher.

Possible acquisition target: Now that FSYS has recently become fantastically successful, I'm sure it has hit the radar screens of likely buyers as a prime acquisition target. The most logical buyer would be T. Boone Pickens because his Picken's Energy Plan emphasizes the use of CNG to fuel vehicles. Pickens is also the owner of Clean Energy Fuels Corp (CLNE), a company that operates CNG fueling centers. The integration of these two alternative fuel enterprises would provide superior synergies. FSYS would also make an excellent fit for auto parts manufacturers Borg Warner (BWA) and Johnson Controls (JCI).

Cheap valuation: How many companies are actually growing their earnings in this very chaotic economic environment? Not too many, and none at the rate FSYS is currently delivering. FSYS is on schedule to earn $2.12 in 2008, which equates to an incredible growth rate of 450% over 2007 earnings of 38 cents per share. The stock is selling at only 11 times 2008 earnings estimates and has a mere $12 million of debt on its books.

The analysts are bullish: The three analysts who provide research coverage all have positive opinions and an average one year $50 price target. This target seems realistic, especially considering the shares traded near the $60 level just three months ago.

Bottom line: The shares are way oversold and due for a nice bounce. The risk reward ratio proves bullish, as perceived risk is near $5, while the stock's potential upside is closer to $25, making the decision to buy this equity a "no brainer" at this juncture.

Fuel Systems Solutions, a U.S.-based company, delivers alternative fuel solutions for transportation and industrial applications that reduce emissions, displace petroleum and generate savings, which is extremely relevant today. The company is comprised of two subsidiaries, industrial under IMPCO Technologies and transportation under BRC. IMPCO designs, manufactures, markets and supplies advanced products and systems to enable internal combustion engines to run on clean burning gaseous fuels such as natural gas, propane and biogas. IMPCO is a leader in the heavy duty, industrial, power generation and stationary engines sectors. Headquartered in Santa Ana, California, IMPCO has offices throughout Asia, Europe, Australia and North America.

BRC produces a complete range of systems for converting vehicles to gaseous fuel to meet market requirements. BRC is a leader in the light duty and automobile alternative fuel sectors and has established alliances with several major automobile manufacturers for OEM projects. Headquartered in Cherasco, Italy, BRC has offices throughout Asia, Europe and South America. Additional information is available at http://www.fuelsystemssolutions.com.

Disclosure: Long FSYS.

Comments

[Upside to F...:]

FSYS at Dec. 3 market close stood at $34. A nice round-trip bounce off your call when the stock traded in the $23 range. Whether any of the past couple of weeks price moves are rational or not - I believe that there is not much to realistically hang your hat on from a fundamental perspective here. If Fuel Systems sales are fundamentally linked to the price of crude oil and the demand for regular gas long term this stock should be trading in the low 20's to high teens. If you're looking at this as a potential buyout play - ala Pickens or a parts manufacturers - how realistic is that given Picken's & the parts gangs recent stock losses and seeming compromised liquidity positions. A stock price in the mid 30's is not pricing in the massive pullback in crude prices (which evidently appears as if it will be with us for at least a year and probably more - see S-A Andrew Mickey's piece yesterday on Oil's Slippery Slope - Dec 2) , with unemployment everywhere ramping up hard and fast and no quick fixes in store what companies or individuals are going to want to convert their vehicles engines when what's already under the hood is good and getting better pumpwise and not converting will save them king cash. If reality sinks in soon - the profitable trade looks easily to the downside. FSYS cannot trade on fundies because there is no meaningful outlook for the next couple of quarters. With no meaningful outlook how can this stock be an investment - it's not. This is purely a trade, a casino bet. Going short FSYS here not on fundamentals but on falling price of long term crude and relative pricing. BTW, if you have any info on FSYS forward numbers for 09 I'd be happy to hear it. Has the company even hinted what's happening to demand. Seems it's silence is deafening. Without forward projections for the coming year this company appears to be trading on gas fumes and Obama hope.

2008 Dec 03 06:14 PM