KSW, Inc.: Building on the Private Sector Construction Recovery in New York

| About: KSW Inc (KSW)

KSW, Inc. (NASDAQ:KSW) is a HVAC contractor primarily offering its services in New York City by installing heating, air conditioning, ventilating and process piping systems. The company currently pursues a range of projects including institutional, industrial, commercial, high-rise residential and public works projects with values in excess of $3 million. The company takes pride in getting involved with projects early and providing valuable engineering assistance to save the developer money while still providing a quality solution. In addition, the company serves as a mechanical trade manager acting as the construction manager for the mechanical trade portion of the project. This service allows the lead construction manager of a project to lock in the costs of the mechanical portion of the contract prior to completion of the contract documents. The mechanical trade services is generally a lower margin business, but the company deems this service as less risky.

The company has completed or is in the process of completing various projects throughout New York. Below is a brief overview of some more recent projects to give you an idea of the type of contracts the company has been awarded.

  • NYPH Cardiovascular Center - A $17.22 million project completed in 2010.
  • Trump International Hotel and Tower at 246 Spring Street - A $11.9 million project completed in 2010.
  • 45th Street Hotel - $6 million project completed in 2010.
  • 123 Washington Street - A residential project completed in 2010.
  • 839 Sixth Avenue - A $20.6 million project completed in 2010.
  • Brookhaven Labs Buildings 480 & 815 - A $4.2 million project that is still in progress.
  • Brookhaven National Chiller Plant - A $6.47 million project that is still in progress.
  • WTC Chiller Plant - A $46 million project that is still in progress. This project is a joint venture with Five Star Electric Corp.

The company had various other projects that commenced in 2010 included a project at the World Trade Center and Mount Sinai Hospital.

Revenues at KSW increased 18.3% in 2010 to $76.3 million and net income increased 55% to $1.97 million or $0.31 per diluted share. The backlog at KSW stood at $64 million at the end of 2010. The momentum continued into the first quarter of 2011 with revenues rising 22.9% to $16.55 million and net income jumped 257.5% to $311K or $0.05 per diluted share. The backlog also increased slightly to $69.23 million.

On May 24, 2011 KSW announced that it had been awarded new private sector contracts totaling approximately $36 million. On the list of contracts announced by the company were three residential projects including Gotham West in Manhattan, a 41 story apartment building in Long Island City, N.Y. and a boutique hotel in midtown Manhattan. According to the company, the addition of these projects pushed the backlog of KSW to approximately $100 million.

The stock closed yesterday at $3.74. The company's balance sheet is strong with $15.4 million or $2.41 per share in cash, current assets of $38.45 million and total liabilities of only $18.8 million as of March 31, 2011. The strong balance sheet and the company's flexibility allowed it to weather the storm over the last few years and unless there is another severe downturn, it should limit the downside risk in the stock. If the recently announced awards are any sign of the improvements taking place within private sector development in New York, the stock could have significant upside from current levels over the next few years.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in KSW over the next 72 hours.