Before investing in any stock, investors always perform a deep analysis about that particular stock. They always prefer stocks with great potential and positive future growth. But, while performing these analyses they sometimes overlook certain stocks that may fetch a pocketful of return in future. Federal Signal Corporation (NYSE:FSS) is that kind of a stock with great potential.
Founded in 1901, this Oak Brook, Illinois- based company is a manufacturer and worldwide supplier of safety, signaling and communications equipment, hazardous area lighting, fire rescue products, street sweeping and vacuum loader vehicles, parking control equipment, custom on-premise signage, carbide cutting tools, precision punches and related die components. With a market cap of $917.40million, the company serves municipal, governmental, industrial, and commercial customers. Federal Signal has manufacturing facilities worldwide and operates in three groups: Safety and Security Systems, Environmental Solutions, and Fire Rescue.
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- FSS 15-Year Financial Data
- The intrinsic value of FSS
- Peter Lynch Chart of FSS
Tracking the Performance
On May 1, 2014, this leader in environmental and safety solutions reported first quarter ended March 31, 2014 adjusted net income from continuing operations of $7.5 million, equal to $0.12 per diluted share, up 42% compared to $5.3 million, equal to $0.08 per diluted share, in the same quarter a year ago. Consolidated net sales for the first quarter were $200.2 million, up slightly versus the same quarter a year ago. The company’s first quarter income from continuing operations was $7.6 million, equal to $0.12 per diluted share, compared to a loss of $1.1 million, equal to a loss of $0.02 per share, in the prior year quarter. The company also reported operating income of $12.8 million for the quarter, up 6% versus last year, and orders of $232 million for the quarter, up 21% versus last year.
Federal Signal’s Environmental Solutions Group had a strong quarter, with sales up 8%, operating income up 20%, operating margin at 12.6%, and orders up almost 13%. Safety and Security Systems Group did not replace some significant systems deliveries that occurred last year, contributing to softness in sales and operating margin, but the company’s police business helped drive a 16% increase in orders for the group. Fire Rescue Group incurred an operating loss during the quarter, primarily as a result of a less profitable product mix and its deferred deliveries. However, its 52% increase in orders has boosted its backlog to $106 million, and the company expects it to recover to have a solid year. Federal Signal’s consolidated historical financial performance has been provided in the following chart.
As per the company’s point of view, its operations will continue to improve, demand for its products will remains strong, and it will enter the second quarter with a healthy backlog. Federal Signal recently announced authorization to repurchase up to $15 million of company stock. This is primarily intended to reduce the allocation of investment of company stock within the U.S. pension plan, and to offset dilution resulting from employee equity incentive programs. The company’s EPS target is of at least $0.79. A chart has been provided below to show the company’s EPS trends.
Charts from company website
Federal Signal’s growth strategy includes three areas; geographic expansion, new markets for existing products, and new product development and acquisitions. Geographic expansion includes Jetstream and Industrial Systems in the Asia Pacific and Middle East, export markets from the U.S., and introduction of Bronto in North America. Federal Signal’s goal is to grow sales into industrial markets faster than into municipal markets as industrial markets offer greater growth potential and higher margins.
On a Concluding Note
Federal Signal’s strength can be seen in multiple areas such as well-defined market position in critical infrastructure markets, unparalleled brand equity and distribution franchise in core markets, strengthened balance sheet, profitability and free cash flow, flexible manufacturing capacity ready to deliver higher revenues and profits, favorable long-term market dynamics, and management execution. Further, with continued progress on operating margin targets and diversified product mix, this leader in environmental and safety solutions will provide a handsome return to its valued investors in the long run.