Why Metretek Merits Monitoring

Can Metretek (MEK), a small cap ($190 million) provider of gas and electric energy measurement products, services and systems, continue to obliterate analysts projections? The company has substantially bested estimates for the last two quarters (by 39% and 112% respectively) and is expected to post Q4 earnings of $0.22 a share on Tuesday, March 13. The company, which is only followed by only a couple of firms, provided full year guidance of $0.68 to $0.72 per share for fiscal 2006.

I expect MEK to also issue further guidance for 2007. In the Q3 conference call the company offered preliminary guidance of $15.5 million in income, $137 million in revenue, and $0.89 a share in earnings. If Metretek can deliver on these numbers, year over year earnings would see 29% growth. Not too shabby for a company trading at 13 times forward earnings.

However, it is significant to note that the company derives a major percentage of its revenue from a single contract, with supermarket chain Publix. This, in and of itself, is a bit of a red flag. Though MEK did recently announced the finalization of at least five new contracts with utility companies worth around $11 million in revenue.

Management has steadily maintained its guidance for fiscal 2006 over the past few months. In the past, MEK has been able to blow by its own numbers, as management's numbers pretty much serve as the street's numbers. This leads me to believe that the company has been rather conservative in its estimates, allowing it to over deliver and beat quite handily. It will be interesting to see if Metretek can outperform its own guidance once again.

I'll be tuning in, that much is certain.

MEK 1-yr chart

Disclosure: I do not own shares in any company mentioned.