Buy: Federal Signal (FSS)
from Upside
Founded in 1901, Federal Signal (FSS) is built around three attractive businesses serving government and commercial customers in more than 100 countries. The environmental solutions business (59% of sales for the nine months ended September) makes street sweepers and vacuum trucks. The safety and security division (28%) sells vehicle lights and sirens and public warning systems. The fire rescue unit (13%) is a leading provider of aerial lifts used for firefighting and industrial and utility applications.
An expanding global footprint, favorable trends in U.S. municipal spending, and product launches bode well for near-term growth.
The stock earns an Overall score of 95, paced by a 90 in Earnings Estimates. An improved balance sheet and healthy cash flow should help sustain growth. On September 30, long-term debt was $61 million, down 50% from a year earlier. Over the last 12 months, cash flow has jumped 51% to $87 million. For 2014 ended December, Wall Street expects per-share earnings of $0.91, down 5%. For 2015, the consensus is $1.08, up 19%. Federal Signal, trading at only 14 times estimated 2015 earnings, is being initiated as a Buy.
Richard J. Moroney, CFA, Upside, www.upsidestocks.com, 800-233-5922, February 2, 2015