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DRI Corporation (NASDAQ:TBUS) is a provider of electronic equipment for mass transit including electronic signage, voice announcement systems, dispatch and vehicle location systems etc. The macro political picture, as well as the recent progress the company has made in their business, offers what appears to be an excellent opportunity for short, medium and possibly long term appreciation from its current $2 share price.

The company announced earnings for the second quarter of 2009 on Thursday afternoon; results were excellent with EPS of .09/share on revenues of 21.5 million. This is up sequentially from 13.2 million in revenues and a loss last quarter and 19.1 million in revenues and EPS of .03 last year. Earnings are currently untaxed, however the company has significant NOLs that should last for several years.

Looking backward....

Looking at the historical record for the company, this is not a one quarter story. Indeed they have been consistently growing revenues for several years as outlined below

  • 2005 - 45 million
  • 2006 - 51 million
  • 2007 - 58 million
  • 2008 - 70 million
  • 2009* - 83 million (*per guidance)

This tabulates to a very healthy 16% average annual revenue growth rate. The key point is that the results they are seeing today is not indicative of a one quarter wonder but a pattern that has been developing for several years.

Looking forward.....

The company has issued guidance for 2009 of .22 EPS which was recently raised from .20 EPS - always a good sign. Assuming they hit their guidance they will average .11 in EPS each of the next two quarters of 2009 for an implied forward PE under 5. Furthermore, the company is guiding for an annualized run rate of 120 million dollars by 2011, implying that they believe their momentum will continue.

Other catalysts....

Its hard to divorce this company from the political realities around us. Historically they have been heavily dependent on US government funding for mass transit. In fact the company had results torpedoed in previous years due to uncertainty in funding for these projects. With a current democratic majority in congress and mass transit coming back in vogue the political environment is extremely favorable. The strength of the political winds is not entirely clear but the direction is.

As the company notes in their latest press release funding for the SAFETEA-LU replacement program that had provided the company much of their revenue is in line for a potential increase of 90% based on a house plan. Such developments offer significant political upside to what already looks like a potential high reward play.

Finally, the company is well positioned in BRIC markets (Brazil and India) and they are developing a presence in Russia. This offers the company opportunities as these markets expand and offers investors a roll up play on both public transit and BRIC growth at the same time.

Given current guidance and the general environment for the company, I see a great deal of short and mid term upside. It's difficult to believe that the company will not be trading significantly higher if they meet their guidance for the year and there is a strong possibility it will see some meaningful increases prior to that. For those who play microcaps for the short and mid-term, his looks like one of the better risk/reward plays available.

Disclosure: Author holds a long position in TBUS

Source: DRI Corporation: Leveraging Mass Transit into Growing Earnings