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Fuel Systems Solutions Second Quarter Preview

|Includes:Fuel Systems Solutions, Inc. (FSYS)

This Thursday morning, before the market opens, FSYS will report its second quarter results. Expectations are again disappointing, with the alternative fuel provider slated to earn just 9 cents on sales of $107.5 million. That is in comparison with a earnings of 11 cents and sales of $109 million in the previous year's same period.

Low expectations are a good thing, because they are easy to beat: Think about it, the company is expected to earn a bottom line of just $1.8 million out of $107.5 million in sales-that represents a paltry 1.6%. For every dollar of sales, the company retains just 1.6 cents...in my mind that is horrible...why even bother? The good news is that they are performing so bad, that there is ample room for drastic improvement in this number. In fact, 10% is a reasonable target that would enable FSYS to earn $2.00 per share, generating a PE multiple near the 9 mark.

I am going to go out on a limb and predict FSYS will actually beat expectations and raise its guidance for the second half of the year. Why? (1) FSYS is way past due for a beat (2) its GM program is finally starting to ship product. (3) the recent strong price action of its stock leads me to believe that those in "the know" have been net buyers.

Look for FSYS to put up earnings of 14 cents on sales of $111 million. If FSYS surprises me and happens to show another weak quarter, management will blame foreign currency losses, increased costs and higher R&D costs as the main culprits.

Disclosure: I am long FSYS.

Stocks: FSYS