Michael Alexander's  Instablog

This is just a short follow up on my previous article on Smith-Midland corp

www.seekingalpha.com/article/141233-smith-midland-cheap-undiscovered-infrastructure-stock

SMID released earnings last week and knocked it out of the park with EPS of .15/share against .04 last year. Cash and receivables have now grown to 1.62 a share. Backlog continues to be quite healthy at 13 million dollars. If you remove one time expenses in the December quarter they have now had consecutive EPS numbers of .12,. 20, .15. The stock has responded modestly so far settling at 2.11/share Friday.

The forward outlook is a bit more puzzling as the company notes their results will be "less positive" while also citing that they will benefit from the stimulus package.

Reading the tea leaves here I am interpreting this to mean we are going to see EPS fall sub .10 possibly to .06 or .07 in the near term. Still its hard to see the stock as anything but cheap given their earnings trends plus cash/receivables numbers and book value that is currently 1.79/share.

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 dollar share price.

The company announced earnings for the second quarter of 2009 on Thursday afternoon and 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 NOL's that should last for several years.

Looking backward....
Looking at the historical record for the company this is not a 1 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 being is that the results they are seeing today is not a 1 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 2 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. Its 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 sees some meaningful increases prior to that. For those who play microcaps for the short and mid-term this looks like one of the better risk/reward plays available.

Smith-Midland (SMID) is one of the few infrastructure plays that have managed to fly under the radar of most investors yet at current prices it seems to be one of the better trade opportunities out there on an increase in infrastructure spending in the coming months.

SMID makes concrete barriers used primarily in highway construction as well as sound barriers and utility vaults. The company has been seeing improving results and backlog even before there has been a significant impact from federal stimulus spending.