Cpi Aerostructures (NYSE AMEX:CVU)

The GeoTeam listened to the replay of Cpi Aerostructure's (CVU) presentation at the Noble Financial Equity Conference that took place on  January 17, 2012.  Recall that we added the stock to our GeoBargain list at $4.00 per share on February 4, 2009.  Yesterday we mentioned that we added to our position based on this call and believe the company’s growth is about to punch into second gear. The Stock is selling at 8 times 2012 EPS estimates of $1.59. That implies 54% growth and less than 2 times its book value per share of $7.39.  

Key points from the call

• Tremendous long term visibility. 
• 2012 off to a good start. 
• 2011 guidance of revenue of approximately $74 million and net income of $7.4 million to $7.5 million are still intact. Direct quote from presentation:

 “I would not be standing here talking to you if I didn’t think we were going to hit our numbers to be released in the next few weeks."

• 2012 Guidance is still intact. (Implied EPS range of $1.69 to $1.83, which is higher than analyst estimates of $1.59)
  
• 2012 Does not include
  
  
  • contracts the company is still bidding on
  • any uptick to government spending
  • the possible expansion of existing contracts to include add on orders.

EDGEWOOD, N.Y.--(BUSINESS WIRE)--CPI Aerostructures, Inc. ("CPI Aero®") (NYSE Amex:CVU) today announced that it has received its first new business award for 2012, a purchase order valued at $12.7 million from the Boeing Defense, Space & Security unit of The Boeing Company ("Boeing") for assemblies for the A-10 aircraft. This represents a follow-on order for CPI Aero’s previously announced long-term requirements contract to support Boeing's A-10 Wing Replacement Program (WRP). The A-10 WRP contract between Boeing and CPI Aero is worth up to approximately $84 million for the production of a variety of structural assemblies for up to 242 enhanced wings. To date, CPI Aero has received firm requirements for 117 ship sets at a value of approximately $47.3 million for the A-10 WRP program.

In addition, CPI Aero announced that new business awards from all customers for the year ended December 31, 2011 was approximately $83.6 million compared to $61.7 million for all of 2010.

Third Quarter 2011 Results

• Revenue increased 28% to $16,607,638 from $12,976,084;
• Gross margin was 25.1% as compared to 26.1%;
• Pre-tax income increased 17% to $2,531,042, compared to $2,171,363; and,
• Net income increased 26% to $1,805,042, or $0.25 per diluted share, compared to $1,429,363, or $0.21 per diluted share.

 As expected, 2011 third quarter revenue increased by only 28% with the big surge in revenue to come in the fourth quarter. As we are now well into the fourth quarter, we can say with added confidence that the fourth quarter of 2011 will be the highest revenue quarter in CPI Aero’s history by a significant margin.

EDGEWOOD, N.Y.--(BUSINESS WIRE)--CPI Aerostructures, Inc. ("CPI Aero®") (NYSE Amex:CVU) today announced that it has received authorization from Spirit AeroSystems, Inc. (“Spirit”) (NYSE SPR) for work on wing leading edge assemblies for business jet aircraft that extend CPI Aero’s backlog through September 2013. In March 2008, Spirit and CPI Aero entered into a long term agreement to provide Spirit with leading edges for the wing of the business jet. Spirit designs and manufactures the entire wing for this business jet customer.

The total 2011 year-to-date awards for CPI Aero from all customers is $81.5 million, compared to $57.7 million for the same period of 2010 and $61.7 million for all of 2010.

Second Quarter 2011 vs. 2010 

• Revenue increased 38.9% to $17,426,223 from $12,544,625;
• Gross margin was 24.4% compared to 26.7%;
• Pre-tax income increased 14.7% to $2,094,816 compared to $1,826,254; and,
• Net income increased 30.3% to $1,570,816 or $0.22 per diluted share, compared to $1,205,254, or $0.18 per diluted share.

Edward J. Fred, CPI Aero’s President & CEO, stated, “The current second quarter and six month periods were our best ever reporting periods in terms of revenue and net income. The increase in revenue is primarily the result of work performed for the Boeing Company on the A-10 attack jet and Northrop Grumman Corporation on the E-2D surveillance airplane. Revenue for these two programs accounted for approximately 74% of government subcontracting revenue and approximately 58% of total revenue for first half of 2011.”

He continued, “As was the case in the first quarter of 2011, our gross margin in the second quarter was slightly below our targeted gross margin range of 25%-27%. This was primarily due to the lower gross margin for the C-5 TOP order received in the first quarter of 2011, as well as travel and labor required for supplier surveillance on the early stage of production for our three major programs: the A-10 attack jet, the E-2D surveillance airplane and the Gulfstream G650 aircraft. Additionally, because of the continued development of new suppliers, and the new contracts won in the first half of 2011, these costs should remain in effect through year-end, resulting in a gross margin range of 24%-25% for second half of 2011.”

Mr. Fred added, “As of June 30, 2011, new contract awards totaled $58.6 million, which included approximately $8.8 million of government prime contract awards, approximately $19.9 million of government subcontract awards and approximately $29.9 million of commercial subcontract awards, compared to a total of $31.1 million of new contract awards, of all types, in the same period last year, and $61.7 million for all of 2010.”

Mr. Fred went on to say, “Lastly, because some anticipated contract awards have been delayed by a customer, we are providing revised guidance for both revenue and net income. The net income reduction will also take into account the additional cost to relocate the Company to the larger facility, which was obviously not anticipated when we issued the original guidance. Therefore, we now project that 2011 revenue will be approximately $74 million, with a resulting net income in the range of $7.4 million to $7.5 million.

“However, because of this award delay that pushes revenue into 2012, and the strong year we have had to date in receiving new orders, we are pleased to be able to raise 2012 guidance to the following: we expect that revenue should be in the range of $95 million to $98 million, with a resulting net income in the range of $12 million to $13 million.”

He concluded, “As a final piece of the guidance discussion, we expect third quarter revenue for 2011 to be the lowest revenue quarter of the year, while the fourth quarter will be the highest revenue quarter in CPI Aero’s history, and by a significant margin. While we don’t typically issue quarterly guidance, we feel it is important to point out the revenue level expectations for these quarters, as the revenue timing is somewhat different than it has been historically. This is simply due to the timing of deliveries, and the requirement to purchase materials to coincide with these delivery schedules.”

Files S-3 form. Please see link.

EDGEWOOD, N.Y.--(BUSINESS WIRE)--CPI Aerostructures, Inc. ("CPI Aero®") (NYSE Amex:CVU) today announced that it has received purchase orders from Spirit AeroSystems, Inc. ("Spirit") for wing leading edge assemblies for the Gulfstream G650 aircraft that extend CPI Aero’s backlog through July 2012. In March 2008, Spirit and CPI Aero entered into a long term agreement to provide Spirit with leading edges for the wing of the Gulfstream G650 business jet. Spirit designs and manufactures the G650 wing for Gulfstream Aerospace Corporation.

Edward J. Fred, CPI Aero's CEO and President, stated, "We are proud of our performance on this program and are excited about these follow on orders. As we continue to demonstrate our assembly capabilities to Spirit, we hope to be considered for additional opportunities for assemblies on this platform."

This award brings the total new year-to-date awards for CPI Aero from all customers to $54.7 million, compared to $9.5 million for the same period of 2010 and $61.7 million for all of 2010.

EDGEWOOD, N.Y.--(BUSINESS WIRE)--CPI Aerostructures, Inc. (“CPI Aero”) (NYSE Amex: CVU) announced today that on June 30, 2011 it entered into a lease agreement, with Heartland Boys II L.P. for the premises located at 91 Heartland Boulevard, Edgewood, New York, directly across the street from CPI Aero’s current location. The approximate 171,000 square foot building will be used as the Company’s assembly facility, principal offices and corporate headquarters. CPI Aero intends to move all of its operations presently at 60 Heartland Boulevard, Edgewood, New York to the new facility by December 31, 2011. The term of the new lease commences on July 1, 2011 and expires on April 30, 2022.

Commenting Edward J. Fred, CPI Aero’s President & CEO, stated, “Our planned move into premises that are nearly three times the size of our current location is indicative of our expectations for continued growth in orders, customers, programs and of course revenue and profits over the coming years. Since the landlord of both properties is the same, our old lease has been amended and we no longer pay rent at the 60 Heartland Boulevard location, although we have use of it through year end as well as of the the new location immediately. We were able to negotiate attractive rental terms for the new location and we are pleased that it will cause no dislocation to our employees.”

First Quarter Results:

• Revenue increased 45% to $16,009,608 from $11,005,529;
• Gross margin was 24%, compared to 25%;
• Pretax income increased 54% to $2,012,050, compared to $1,303,815;
• Net income increased 59% to $1,368,050, or $0.19 per diluted share, compared to $860,815, or $0.14 per diluted share

Edward J. Fred, CPI Aero’s President & CEO, stated, "We started 2011 on a strong note with revenue and net income increasing by 45% and 59%, respectively, compared to the first quarter of 2010. In addition, revenue for the three months ended March 31, 2011 made the current quarter our best ever quarter in terms of revenue. The increase in revenue is primarily due to work performed for the Boeing Company on the A-10 attack jet and for Northrop Grumman Corporation on the E-2D surveillance airplane."

Mr. Fred concluded, "We are once again confirming our 2011 guidance which calls for revenue to be in the range of $78 million to $81 million, a 77% to 84% increase over 2010, primarily due to increased work on our three major long-term programs: A-10, E-2D and G650. Net income for 2011 is expected to be in the range of $9.2 million to $9.5 million. Our gross margin for the year should be in the range of 25% to 27%. In addition, we continue to expect that for 2012, revenue should be in the range of $88 million to $91 million, with resulting net income of between $11 million and $12 million."

• Revenue was $7,464,546 from $12,729,858 
• Gross margin was (45%), compared to 30% in last year’s fourth quarter;
• Pre-tax loss was $4,758,535, compared to pre-tax income of $2,240,661; and,
• Net loss was $2,965,535, or $0.44 per diluted share, compared to net income of $1,559,661, or $0.25 per diluted share.

Edward J. Fred, CPI Aero’s CEO & President, stated, "As previously announced, the termination of the T-38 program one release year earlier than expected, resulted in a revenue adjustment based on a change in estimate for the fourth quarter and the year. This non-cash adjustment is a GAAP change in estimate, and conforms to the procedures used for the percentage of completion method ("POC") of accounting.

"The adjustments that we made for the T-38 program and two other contracts subject to early termination/completion that are accounted for in a similar manner, eliminate the possibility of similar revenue adjustments on these ongoing contracts in future years.

"Without the impact of the above adjustment, we would have slightly exceeded our 2010 guidance of revenue in the range of $49 million to $51 million and net income in the range of $4.6 million to $4.8 million."

Mr. Fred concluded, "Our 3-year, compounded annual growth rate guidance for revenue in the range of 30% to 35%, and for net income in the range of 50% to 60% - provided by CPI Aero in 2008, remains intact. We remain confident that we will achieve our 2011 guidance which calls for revenue to be in the range of $78 million to $81 million, a 77% to 84% increase over 2010, primarily due to increased work on our three major long-term programs: A-10, E-2D and G650. Net income for 2011 is expected to be in the range of $9.2 million to $9.5 million. Our gross margin for the year should be in the range of 25% to 27%. In addition, we estimate that for 2012, revenue should be in the range of $88 million to $91 million, with resulting net income of between $11 million and $12 million."

Second Quarter 2010 vs. 2009

• Revenue increased 10% to $12,544,625 from $11,437,691;
• Gross margin was 26.7% compared to 24.8%;
• Pre-tax income increased 31% to $1,826,254, compared to $1,389,489; and,
• Net income increased 33% to $1,205,254 or $0.18 per diluted share, compared to $903,489, or $0.14 per diluted share. Diluted earnings per share were calculated on 8.7% more shares in 2010 second quarter vs. 2009 second quarter.

Reaffirms Long-Term Guidance

Mr. Fred added, “We are again reaffirming our long-term guidance which is based on our expectation that our three major long-term production programs (A-10, E-2D and G650) will be in full scale production and producing consistent significant revenue during 2011. For 2011 we expect that revenue will be in the range of $78 million to $81 million, with resulting net income in the range of $8.9 million to $9.5 million. Using 2008 as the baseline, we expect a three-year compound annual growth rate for revenue in the range of 30% to 35%, with a resulting compound annual growth rate for net income in the range of 50% to 60%.”

“Based on results for the first half of the year and expectations for a strong second half, we are confident that we will reach our 2010 guidance which calls for revenue to be in the range of $48 million to $51 million, with resulting net income in the range of $4.3 million to $4.8 million.”

Raises $3.5 Million through Registered Direct Offering

Mr. Fred concluded, “As previously announced, in the second quarter of 2010 we completed a registered direct offering raising $3.5 million in net proceeds through the sale of 500,000 shares of our common stock. As a result, we strengthened our financial position in preparation for continued growth and enhanced the potential liquidity of our stock.”

2008 Year end comments:

“As previously reported, our 2009 new contract awards approximated $23.4 million. Of this amount, approximately $10.6 million, $6.9 million and $5.8 million were government prime contract awards, government subcontract awards and commercial subcontract awards, respectively. Although this total was well below contract awards for 2008, orders in the fourth quarter of 2009 were significantly higher compared to the previous quarters of the year. From the start of the year through March 15, 2010 we have received a total of $3.6 million in new contracts, compared to $2.5 million in the same period last year. We look forward to additional new orders from existing contracts as well as from the unawarded solicitations of approximately $270 million that we have bid on as of March 15, 2010.”

Mr. Fred concluded, “As previously announced, based on the visibility we currently have, we project that 2010:

• Revenue will be in the range of $48 million to $51 million,
• Net income in the range of $4.3 million to $4.8 million.

It is our expectation that our three major long-term production programs (A-10, E-2D and G650) will be in full scale production and producing consistent significant revenue during 2011, and we therefore project that 2011:

• Revenue will be in the range of $78 million to $81 million,
• Net income in the range of $8.9 million to $9.5 million.

 Additionally, using 2008 as the baseline, our 2011 guidance affirms our expectations for a three-year compound annual growth rate for revenue in the range of 30% to 35%, with a resulting compound annual growth rate for net income in the range of 50% to 60%.”

Source: Business Wire (March 23, 2010)

See New GeoWire Article.

Based upon the year-to-date results and our expectations for the fourth quarter, we confirm that we will achieve our 2009 guidance, which calls for revenue in the range of $42 million to $45 million, and net income of between $3.9 million to $4.3 million. We are fully cognizant of the fourth quarter results that are required to meet these targets, and with approximately seven weeks left in our fiscal year, we are confident of our ability to achieve these results.”

Source: Business Wire (November 10, 2009)

Valuation Scenarios

Added to GeoBargain List on February 4, 2009. ($5.00). 

Data Inputs:

Fiscal Year Ends in December
2008 EPS: $.42

Long-Term (12 Months Forward) Valuation Scenarios

Peg Ratio Analysis - Common rule of thumb that PEG ratio should be less than 1.0

^aThe above forecasts reflect the Company's current and preliminary views and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.

^b CPI Aerostructures did not provide EPS guidance. The GeoTeam® calculated an implied EPS figure using the current outstanding share count of 6,250,021.

July Investor presentation available for Cpi Aerostructures.

Highlights:

1. On track to achieve 2009 guidance
2. Long term visibility
3. $360 million in award solicitations
4. Management expects margins to significantly improve

Cpi Aerostructures shares have been under selling pressure today.  The company reported 2009 first quarter results this morning. EPS was $.09, up nearly 30% from the same period last year. 

 Investors seem to be focusing on two parts of the release:

• Due to lower margins, EPS was sequentially down from 2008 fourth quarter EPS of $0.15.
  
• New orders totaled $4.5 million compared to $10.7 million, causing some investors to possibly question previous financial guidance information.

The company clearly addressed both of these issues in their conference call.

• Reduced margins were the result  of "additional costs incurred in the early stages of new programs related to customer changes to engineering and design requirements."  This is not an uncommon situation for Cpi Aerostructures. The company was very specific in confirming that margins will improve to historical levels as they progress through 2009.
  
• The company made it very clear that, their previously issued financial guidance does not give much weight to new order bookings.  It mainly reflects long-term contracts that the company has already won, giving them a high degree of visibility for the next three years.   Also, their are significant outstanding orders available for bids ( $360 million).

The company was very adamant that, as it currently stands, their previous guidance is still in tact.

One more note:  The company stated they intend to aggressively pursue investor awareness activities.

The GeoTeam® suggests that current and prospective investors listen to the conference call replay.   In the opinion of the GeoTeam®, the call was very bullish.  The GeoTeam® added to its long position on the stock's pull back.

Valuation Scenario Update:

Data Inputs: (As of March 27, 2009)

Short Term  Scenarios

Long Term (12 Months Forward) Scenario

Peg Ratio Analysis (Aggressive):  Common rule of thumb that the P/E should equal the future EPS growth rate:

These scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions

Fourth Quarter 2008 Financial Table Update

Full Year 2008 Financial Table Update

Valuation Scenarios:

Data Inputs: (As of February 12, 2009)

Short Term  Scenarios

Long Term (12 Months Forward) Scenario

Peg Ratio Analysis (Aggressive):  Common rule of thumb that the P/E should equal the future EPS growth rate:

These scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions

Source: Business Wire (November 10, 2008)

New Geo feature: The GeoTeam™ does not limit its research to just Asia.  We will also be including some commentary on stocks based in the United States.

Considering a company in the defense sector in the face of an Obama administration may seem unwise.  However, the the GeoTeam® believes that there are reasons to take a closer look at CVU.

It might be possible that the Obama administration poses opportunities to the company.  There is reason to speculate that the administration will opt to use more of its defense budget for repair and maintenance rather than new equipment purchases.  A good deal of CVU's business addresses repair and maintenance issues.

Competitive Advantage

• CVU qualifies as a ‘‘small business’’ in connection with U.S. government contract awards, allowing them to compete for military awards set aside for companies with this small business status.  

• CVU also can pursue smaller contracts that larger firms tend to ignore.

CVU Revenue Opportunities: Prime Contractor vs. Subcontractor

• As a prime contractor the company bids directly on projects.  When acting as a prime contractor the company's exposure to larger projects is limited because of its size and the fact that it may have to compete against larger firms.

• As a subcontractor CVU receives orders from larger prime contractors such as Northrop Grumman Corporation and Lockheed Martin Corporation. By acting as a subcontractor the company can gain access to parts of larger projects that it would not be able to obtain as a prime contractor.

CVU has been increasing its efforts to grow its subcontractor business which is becoming a significant piece of their growth picture.  As of the end of 2007, government subcontracted business comprised 30% of the CVU's revenue, leaving more room for growth.

CVU has also been increasing its penetration into the commercial market, typically a very small portion of their business.  Even with a slowing economy these efforts can pay off as they have little to lose and much to gain.

What does it  is all mean?

• "By increasing our customer base, we have positioned our company to take advantage of additional market opportunities and reduce the impact of the slowdown in government contract awards and releases."

Notable bullish company commentary from the Third Quarter Press Release and SEC Filings 

• "We are on track to achieve the best revenue year in our history of approximately $35 million, a 25% increase over 2007, and net income of approximately $2.6 million, a year-over-year increase of 37%.”

• As of October 31, 2008, total year-to-date awards amounted to $51.5 million, compared to $18.9 million for the same period last year, a 172% increase.

• Year-to-date contract awards have already surpassed 2007 total awards of $37.7 million.

Growth At a Glimpse:

• Third quarter EPS grew 55% to $0.14 .

• The company issued 2009 guidance.  The midpoint net income guidance for 2009 is $4.1 million, which implies EPS of  $.68 .

• The company states that it is on track to achieve a three year annual EPS compounded growth rate of 50% to 60%. 

• The stock is selling at a P/E of only 16 on trailing EPS and an 8 P/E on the implied 2009 EPS guidance.

Established a position

Sources:

Business Wire (November 10, 2008)
Sec Form 10Q ( September 2008)
Sec Form 10K (December 2007)

Guidance Update: 

Mr. Fred continued, "We are able to reaffirm our 2009 guidance which calls for revenue to be in the range of $42 million to $45 million, with resulting net income in the range of $3.9 million to $4.3 million. Additionally, using 2008 as the baseline, for the three-year period ending in 2011, we expect to achieve a compounded annual growth rate for revenue in the range of 30% to 35%, with a resulting compounded annual growth rate for net income in the range of 50% to 60%."

Source: Business Wire (November 4, 2008)