Fuel Systems Solutions (FSYS) really hit one "out of the park" when they reported second quarter results. Revenue rose 50% from $65.6 million to $98.3 million, generating a ten fold earnings increase to $.29 versus $.03. If it wasn't for a non-cash impairment charge of $3.9 million relating to its Australian operations, the company would have delivered a staggering $.54 EPS (almost twenty times higher than the same quarter last year.) FSYS's gross profit margin increased an astounding 700 basis points from 22% to 29% while its SG&A costs were slashed 17% from 14.1% to 11.8%. The company's liquidity improved significantly as its cash holdings increased 40% from $26 million to $43 million.
Earnings expectations obliterated: Analysts were expecting revenue of $93 million and earnings per share of 27 cents. Although the company managed to beat revenue estimates by a "respectable" $5 million, or 5%, the magnitude of the "blowout" was in the earnings, as FSYS delivered exactly two times analysts' expectations of $.27, delivering a staggering $.54 before one time charges. The impairment charge was simply a write-down of goodwill and had no impact on cash flow. These types of write-downs tend to initially confuse Wall Street, enabling savvy investors to temporarily exploit the market while Wall Street is trying to "figure things out".
Guidance raised: The company raised its 2008 revenue guidance 9% from $320 million to $350 million while increasing its gross margin forecast from 24% to 27%. If you do the math, the guidance increase on revenues and margin results in an additional 23% of gross profit or $17.7 million.
Shares have soared: My last piece indicated that the shares were overbought and it was a an opportune time to take some profits, as FSYS had simply gone up too much in too short of a time. The shares subsequently retreated about 30%, before buyers quickly re-emerged, taking the shares back up to new highs. It appears that the first phase of profit taking has run its course, and the next bout won't be for some time.
Additional analyst upgrades: I wouldn't be surprised to see a couple of analyst upgrades today and a new $50 one-year price target established. The company can do no wrong at this juncture as everyone seems intent on piling on.
Short position: FSYS's short position has more than tripled from 431,000 shares to 1.3 million shares. This increase is likely to add even more momentum to the share price as desperate shorts "panic buy to cover" in order to avoid getting caught in an inevitable short squeeze.
Insiders: The shares have rallied more than 400% in the last 4 months, yet interestingly enough, not one single insider (officer or director) has sold any of their shares. It is amazing that none of them have decided to take advantage of such a huge surge in share price by taking some profits. The fact that they are not selling reinforces my confidence that the shares still have a lot more room to run.
The bottom line: The oil crisis is here to stay. FSYS is a strong beneficiary to high oil prices. The Pickens' Plan highlights natural gas powered vehicles. The shares are destined to go higher. Ride the momentum train on this one to the $50 mark before even contemplating selling.
Disclosure: long FSYS