Several clues point to a very strong fourth quarter for CPI Aerostructures ( CVU).

First, throughout 2009, CPI issued guidance calling for net income of $3.9 million to $4.3 million and revenue of $42 million to $45 million.

Using midpoint figures and the company's 2009 nine-month financial results, the guidance implies earnings per share will increase 80% to 27 cents. Sales would rise 35.9% to $12.5 million.

Second, in conference calls, the company has repeatedly stressed that if it believed it could not meet its guidance, it would relay a message to Wall Street. Well, it is now the beginning of 2010, and management has not issued such a message, strengthening the possibility that the fourth quarter will be strong.

Lastly, the company issued a press release on Jan. 14 saying fourth-quarter order flow had intensified.

What I don't possess is specific information on the 2010 forecast the company will provide in conjunction with the 2009 year-end results. I generally prefer to invest in companies that are capable of achieving consistent 30% EPS growth, so I will eagerly await the 2010 guidance.

That said, CPI has offered additional clues indicating 2010 will be a year of growth:
  • In its 2008 fourth-quarter financial release, CPI offered insight into its long-term growth goals in sales and net income growth, saying that it expected to achieve a compounded annual growth rate for revenue from 30% to 35%. The company also said it expected compounded annual growth in net income of 50% to 60%.

  • The company offered broad bullish commentary regarding 2010 prospects, saying, "We expect 2010 to be another year of growth, and we plan to issue our guidance when we announce results for the 2009 fourth quarter and year."
  • In its third-quarter 2009 financial report, the company said, "Unawarded solicitations remain at a high level with open solicitations totaling a maximum realizable value of approximately $393 million."

If the company can confirm 2010 EPS growth of at least 30%, CPI may offer a compelling opportunity for both growth and value investors. The stock is trading at a price-to-earnings ratio of about 9 on 2009 analyst EPS estimates of 66 cents and is selling near its book value per share of $5.92.

Investors also have to be cognizant of some risks. There may be a tendency for CPI to report lumpy quarters at times, a situation I am hoping will change as the company grows. Additionally, on Sept. 17, the company filed an S-3 with regulators, enabling it to raise $10 million. This could be dilutive or accretive depending on how the proceeds would be used (although the company has expressed that accretive acquisitions are part of its overall strategy).

At the time of publication, Soueidan was long CPI Aerostructures.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider CVU to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Maj Soueidan founded The Market's Edge, Ltd. in 1994, The Markets Edge Hedge Fund in 2006 and GeoInvesting, LLC in 2007. Through his involvement with the equity markets, he developed the strategies that are now at the core of the hedge fund and geoinvesting.com. He currently leads a team of researchers and analysts (the GeoTeam) that help investors identify opportunities in today's volatile stock market. The team uses fundamental criteria to analyze stocks in the micro-cap to small-cap arena.

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