Pioneer Power Solutions, Inc. (PPSI) Sees Significant Turnaround For 2016 by GEO Investing
Yesterday, we let you know that we added an 11th stock to our infrastructure screen as one that could benefit from the billions of dollars slated to be spent in the U.S. over the next 5 years to rebuild/improve the infrastructure of roads, building, bridges and the power generation grid. The stock is Pioneer Power Solution (PPSI:NASDAQ). We stated that the passage of the highway bill passed by Congress in November 2015 provides huge opportunity:
“should lift a significant amount of uncertainty off companies’ growth prospects that play in the construction and project management space.”
Pioneer Power Solutions management conference call commentary sheds light on 2016:
“We do expect each quarter in 2016 will be better in terms of revenue and profits than the same quarter in 2015.”
Pioneer Power Solutions reported 2015-year end results after the close yesterday. As we expected, the company’s financial performance for 2015 was subpar. However, Q4 2015 showed impressive bottom line growth and management offered guidance that we think could justify a 100% move in the stock. Here is some commentary from the year end press release:
“We entered 2016 in a far stronger position from where we were just 90 days ago, with a streamlined cost structure driving improved gross margins and greater adjusted EBITDA generation. We began to see the partial benefit of our cost reduction efforts in the fourth quarter, and we expect incremental benefit in the first quarter, driving greater profitability as we move through 2016. This initiative, including the consolidation of six manufacturing facilities to three and the rationalization of our Canadian dry-type transformer operations, was completed during the first quarter. Even without the full benefit of these cost reduction efforts, our adjusted EBITDA for the fourth quarter puts us ahead of the run-rate necessary to meet our 2016 guidance, and we expect further improvements in 2016, particularly in the second-half of 2016.”
And here is some commentary from the related conference call that some investors may not have picked up on yet. Finding this kind of information before the masses is a competitive investing advantage we call “Information Arbitrage,” or Info. Arb.
“We expect our first quarter to show meaningful improvement compared to the first quarter last year consistent with typical seasonality in some of our businesses and do good compensation of the projects in our backlog we expect our financial results to show further improvement as we move through 2016.”
We expect the first quarter to be the lowest in terms of profitability and we expect that profitability to accelerate as we move through the year. The project oriented nature of our business particularly our Pacific Power business and lower service revenue from Titan in the first quarter due to weather constraints leads to non-linear results and several of the larger projects are expected to kick in during the second quarter and benefit to second half of the year as well.
As of today, we have begin to build a position in Pioneer Power Solutions. To continue to receive real time research and trading updates on this company and others we are tracking in this industry, please consider subscribing to our premium service. If you’re not yet ready, we will be back with more ideas in the future.
By the way, if you missed yesterday’s email, of the 10 stocks highlighted on our infrastructure screen, here are the only 3 stocks that we have gone long, for an average return of 45% – even double dipping in one of them when we noticed it was due for a recovery from a parallel stock market decline.
TRR +48% (position closed)
NVEE +66%, 41% (Open, plan to close soon)
SMID +25% (This stock will have some short-term challenges)
Sincerely,
Maj, Dan and the GeoTeam
