Bridgewater Systems: Likely to Continue on Upward Trend

May. 3.09 | About: Bridgewater Sys (BDWRF)

Friday, Bridgewater Systems (OTC:BDWRF) reported Q1 2009 earnings of $2.9 million or $0.12 EPS. Earnings reported for Q1 were nearly 5% higher than full-year 2008. Sales for Q1 2009 were reported at 14.0 million, a 64% increase over Q1 2008. Earnings appear to have soundly beat analyst expectations, and investors should be pleased.

In its outlook, the Company provided forward guidance for sales of between $54.0 million and $58.0 million with earnings of between $7.0 million and $9.0 million, or $0.29 EPS and $0.36 EPS respectively. Guidance implies earnings growth of between 159% and 233% from FY2008 earnings of $2.8 million.

If quarterly patterns for the previous two years hold out for FY2009, then Company guidance with respect to earnings may be conservative. The implied run-rate on earnings for FY2009 is $11.6 million, or $0.48 EPS, based on Q1 results. For the past two years, Q1 earnings were the weakest and Q4 earnings were the strongest, representing approximately 30% of total reported annual earnings. Even with seasonal dips in sales that may occur in Q3, trends may suggest that there is a strong possibility that earnings would come in at the high end of guidance, or possibly exceed guidance.

With current market trends related to mobile data usage and the resulting associated complexities, the Company should see continued robust demand for its solutions from carriers worldwide. The Company may also benefit from improved market conditions during Q4, traditionally its strongest quarter, as the world economy begins to recover.

With $53.9 million of cash on its balance sheet, and free cash flow possibly in excess of $10 million, the Company could end the year with approximately $2.60 cash per share on its balance sheet if it does no acquisitions.

At the end of day yesterday, shares were trading at 13.75x the most conservative earnings guidance, and 10.7x the most aggressive guided earnings growth. Historically, similar earnings growth would result in multiples that could range between 20x and 30x, depending on earnings margins. Basically, there is a lot of room for the share price to increase.

With such a strong Q1 beat on estimates, and a typical seasonal performance weighting towards Q4, investors may see analysts adjust their forecasts upward for BWC and the stock price should continue on its upward trend.

Disclosure: I own shares of BDWRF.PK.