Monday, August 4, 2008

Fuel Systems Solutions (FSYS) Garnering Attention

Looks like Fuel Systems Solutions (FSYS) is getting some attention from mainstream outlets - Friday it was presented in Investors Business Daily and lo and behold later in the day, Mr. Jim Cramer was touting it on his show. Frankly, I get much unease when Cramer highlights any stock I own, especially of the smaller cap type, because of the type of investors whom he brings (in, out, flip it, rip it, punch it, kick it, pump it, and scream Boo Yah) Most people are happy with the quick bounce his hordes bring, but myself... not so much.

In fact with the market so punishing I am going to use this morning's 9% "Cramer" spike to sell some of our position to the new fans via Cramer and we'll try to buy it back lower later. We'll sell here in the mid $39s and reduce our stake from 2.8% of portfolio to 1.9%.

Investor Business Daily: Maker of Fuel Kits Rides High on Interest in Alternative Fuels
  • In countries where it's fairly easy to fill up with natural gas or propane, many drivers now have cars that rely on parts made by Fuel Systems Solutions. The Santa Ana, Calif.-based company's products include after-market conversion kits that let conventional engines run on those alternative fuels.
  • Analysts estimate the cost of a Fuel Systems (NasdaqGM:FSYS - News) conversion kit can be recouped within six to 18 months. That's because of the lower cost of natural gas and propane compared with gasoline.
  • Incentives provided by governments looking to cut vehicle emissions also are helping to convince drivers to make the switch. For example, analysts say Australia's subsidy for a conversion kit totals about $1,920. Italy offers significant incentives as well.
  • Fuel Systems' profit in this year's first quarter blew past expectations thanks to the increased demand for its transportation unit's products. The company earned 40 cents a share on sales of $94.6 million. Analysts had expected per-share profit of 18 cents on sales of $74.8 million.
  • It wasn't just sales of conversion kits costing from $2,000 to $10,000 to drivers and mechanics that boosted results. Company officials say business from original equipment manufacturers, or OEMs, has started to provide the Italy-based unit, called BRC, with another meaningful revenue stream.
  • BRC provides alternative fuel systems and components to OEMs that the manufacturers install themselves on vehicles. Plus the division has developed what officials call a "delayed OEM model" in which it installs its conversion kits on newly built cars just before they're delivered to dealers.
  • Fuel Systems expects to more than double the delayed OEM segment's output after opening a second facility for that type of work earlier this year in Livorno, Italy. Automakers that have bought into the delayed OEM model include Hyundai, Kia and Subaru.
  • Overall, an estimated 20% of the company's revenue comes from Italy, with 37% from other European nations, 23% from North America and 17% from Asian and Pacific Rim markets. Latin America provides the remaining 3%.
  • That adoption has occurred almost entirely outside of the U.S., but that may start to change, says Robert Brown, an analyst for Craig-Hallum Capital Group. He cites factors such as high gasoline prices in the U.S. and political pressure. Another possible catalyst is a November ballot initiative in California that would create a $2.9 billion fund to provide incentives for alternative fuel vehicles.
  • But Brown acknowledges what some call the chicken and egg problem: No one in the U.S. wants to buy an alternative fuel car before there are places to fill it up. And no one wants to build a new network of filling stations before there are cars that run on that alternative fuel. Meanwhile, Italy already has an estimated 1.2 million vehicles that run on a propane-based fuel and 2,000 filling stations. Australia has an estimated 500,000 such vehicles and 3,200 stations.
  • Trends are more encouraging among trucks and other heavy-duty equipment. Ports in California, for example, are rolling out alternative fuel truck fleets.
  • Wall Street also sees risks or challenges for the company, which is expected to report second-quarter results in early August. These include competition from its main rival, Landi Renzo, a privately held Italian firm.
I'd copy the Cramer comments here, but they are almost verbatim from the IBD article out Friday morning.

[Jul 2: Bookkeeping: Buying Fuel Systems Solutions for the 3rd Piece of my Alternative Energy Basket]

Long Fuel Systems Solutions in fund and personal account

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