Penny Stock Pick for January 10, 2006

Symbol: KSW    (Changed From KSWW)

KSW, Inc.

Company Location

Stock Information

37-16 23rd Street

Long Island, NY 11101
Phone: 718.361.6500

Fax: 718.361.5210

Current Price (Close on Jan 9, 2006): $3.05

Short Term Sell Target: $2.72 - $3.13

Long Term Sell Target: $5.00+

 

 

KSW Posted 141.97% Gains for our Readers!

Picked at $3.05 and hit a High of $7.38!

 

 

Company Profile
 

KSWW furnishes and installs heating, ventilating and air conditioning ("HVAC") systems and process piping systems for institutional, industrial, commercial, high-rise residential and public works projects. KSWW does not actively pursue projects under $500,000. KSWW also serves as a mechanical trade manager, performing project management services relating to the mechanical trades. KSWW conducts operations through its wholly-owned subsidiary, KSW Mechanical Services, Inc.

 

Some of KSWW's ongoing projects include the following: Weill Cornell "S" Building , Weill Cornell Ambulatory Care Facility, as well as the conversions from office space to residential rental apartments in lower Manhattan at 10 Hanover Square and 1 Wall Street Court , and new high rise luxury buildings at 325 Fifth Avenue and at 83rd Street and York Avenue . 

 

KSWW's primary strategic objectives are to increase its revenues and to become more competitive in its present business. KSWW has in the past engaged consultants to determine the best methods to maximize shareholder value, including whether the sale of KSWW would be advantageous. 

 

KSWW's primary business is providing heating, ventilation and air conditioning ("HVAC") systems and process piping systems under direct contracts with owners of buildings or subcontracts with general contractors or construction managers. These contracts sometimes are awarded by competitive bids, as many of the owners are public entities. Other contracts are obtained through negotiation with private parties. 

 

KSWW provides value engineering assistance, whereby it uses its experienced staff to streamline HVAC systems and process piping systems by recommending changes which reduce costs but still yield the same results as the original plans. 

Recent News Update (December 15, 2006):

With all of the new contracts and great financials on KSW, the stock has now traded above $6.10 per share, making KSW our latest double! Congratulations to all holders! You know what we always say... while KSW is still promising, don't be greedy. 100% gains are exceptional and at least a portion of your holdings should be taken off the table and those gains locked in and ready for another stock.

 

Recent News Update (December 12, 2006):

KSW announced today that it has been awarded an $11,900,000 contract from Trump Hotels.

 

Recent News Update (October 9, 2006):

KSW announced today that it has been awarded a new project valued at $13,400,000.

 

 

 

Recent News Update (May 2, 2006):

As we had hoped, KSWW announced today in an 8-K filing that it expects to start trading on the American Stock Exchange and move from NASDAQ. As is the case, "listed" stocks, those on a major exchange like the NYSE and AMEX trade with only three letters in their symbol. KSWW's symbol will change to KSW on the first trading day on AMEX. This should help bolster the stock price even further!

 

 

Corporate Overview

 

KSWW's management pioneered the concept of managing the mechanical trade portion of construction projects. On larger complex projects (generally those having a mechanical portion valued over $10 million), such as the Weill Cornell Ambulatory Care Facility, Morgan Stanley Children's Hospital at New York Presbyterian and the Long Island Jewish Hospital Energy Center, it is often beneficial for a construction manager to lock in the costs of the mechanical portion of the contract prior to completion of the contract documents. By engaging the services of a trade manager, the company believes construction managers can more accurately evaluate design alternatives so that the completed construction documents balance costs and project objectives. As a mechanical trade manager, the company’s subsidiary performs a construction manager function for the mechanical trade portion of a project. The company divides the mechanical portion of the contract into bid packages for subcontractors and equipment, negotiates subcontracts and coordinates the work. 

 

As a mechanical trade manager, KSWW may subcontract parts of a large project to different subcontractors, thereby increasing competition on projects and lowering bids by allowing smaller contractors to compete for the subcontract work.

The company provides a guaranteed maximum price to the owners for its scope of responsibility. KSWW controls the maximum price by obtaining accurate price quotes from potential suppliers and subcontractors, requiring payment or performance bonds from major subcontractors and adding a contingency allowance to these price quotes before it submits its maximum price. KSWW also works to control costs because it is a mechanical contractor and can perform the guaranteed work on its own should bid prices exceed its estimate.

 

 

 

 

Backlog

 

In its last quarterly report, KSWW stated it has a backlog (anticipated revenue from the uncompleted portions of awarded projects) of orders totaling approximately $ 78,400,000 as of June, 2005, a significant increase from 2004.

 

Recent Financial News

 

For the quarter ended September 30, 2005, KSWW reported total quarterly revenue of $14,849,000, a 126.1% increase from the quarter reported in September of 2004.  KSWW also reported nine-month revenue ending September, 2005 of $36,277,000, an increase of 87% from the same nine-month period in 2004.

 

Revenues for the latest reported quarter ($14,849,000) were also an increase of 28.5% from just the previous quarter ended June of 2005!

 

KSWW also reported Net Income (Profit) of $1,262,000 for the September quarter as opposed to a loss of $596,000 for the same period in 2004.

 

 

 

Management

 

KSW Inc. has announced that Chief Executive Officer Floyd Warkol has signed a new two-year employment agreement to remain as CEO of the company and its subsidiary, KSW Mechanical Services, through 2007. Warkol, who also serves as chairman of the company's board of directors, has been the CEO of KSW since its inception in 1994 and has more than 35 years’ experience in the mechanical contracting industry.

 

 

 

 

Conclusion

 

KSWW’s impressive performance should not be ignored by investors for too much longer. Currently, we show KSWW’s future P/E ratio (for the next 12 months) at just below 5. Their competitors in the HVAC installation industry average a P/E ratio of over 18. That single fact is the main reason we feel that KSWW is very undervalued at these levels. Even when discounting for its smaller size, we feel that KSWW should be valued near $5.50 at the current time.

 

This is not to say that KSWW’s stock hasn’t been acting well. Looking at the chart, we can see a slow, steady trend upwards. Unless there is some blowout news to move the stock higher, we expect the current slow uptrend to continue. Investors may need to be patient, but KSWW looks to be a stock worthy of our attention.

 

As we always say, take your profits at 25% to 50%. While we do feel that KSWW could run upwards of $5.50, or higher, your best bet is to take 25% to 50% gains in any of our stocks. This will lock in your profits and allow you to put that money to work in another stock. A study of our stocks will show that this is the fastest way to make the most profits.