Giovanni di Maggio

Estimating KSW at 40% Below Fair Valuation

rsinj, you say "The author also appears extremely biased being long the stock. His "estimated fair valuation of $9.72" is nothing more than that - an estimate, one which he has provided absolutely no insight how it was arrived at. "
You don't seem to have read the previous article to which I referred, otherwise how can you say this? Of course I did not repeat the analysis that brought me to the estimated fair value of $9.72 because I could expect that you looked it up before accusing me to give no insight how I arrived there.
The article "The long case for KSW" was published on Jan. 4th (seekingalpha.com/artic...).

Fair value can never be anything else than an estimate because it always bases on assumptions. I have been very clear about my assumptions which were the P/E of comparable competitors and KSW's growth. Trane Inc. (TT) had a ttm P/E of 18.30, Johnson Controls Inc. (JCI) had 17.62 in January while KSW had a ttm P/E of 12.48 , which was 30% lower.
Today TT has 15.84 and JCI has 14.81 while KSW is at 10.03 which is again 35% lower than the average of his two bigger competitors (15.33).
Adding FIX (P/E 16.13) to the mix as proposed by another poster would bring the avg. ttm P/E to 15.6 which does not change much. So KSW is by any means valued at least 35% lower than his comparable competitors.
rsinj seems to argue that the lower valuation is justified because KSW is not growing sufficiently and he refers to the QoQ growth of the mrq.
So the 32% net income growth from 2006 to 2007 is nothing, just because last year's growth has been achieved by increased efficiency notwithstand a very small growth of revenues? I would rather say it is a sign of an able management to increase profits in a slowing economy.
Comparing single quarters does not give a correct idea of how things are going. In this business it is sufficient that a bigger work is finished a week earlier or later and it will be accounted in the previous or the next quarter and the QoQ comparison becomes worthless. To get a correct picture one needs to compare FY results over several years and I think it is very clear how good KSW fares if you look at these results.
Another argument of rsinj was that the growing backlog does not mean anything. While I agree that backlog is not necessarily equal to revenues, I predicted the stagnant 2007 revenues correctly from the backlog numbers and to me this seems to be a confirmation of their usefulness.
Am I biased about the fair value because I am long?
No, it's the other way round.
I am long because my analysis tells me how much this stock is undervalued and I don't need Mr. Warkol to tell me this.
That's why I am not selling at these prices even if KSW drops with the rest of the market.
Call it biased if you want.