Thursday, October 23, 2008

KSW Update

Earlier this week, KSW, Inc. (Nasdaq: KSW), a New York City-based HVAC contractor we've discussed in previous posts (e.g., "KSW Reports") announced that it had been awarded a new project worth between $24 million and $25 million (Press Release: "KSW, Inc. Awarded Contract for Downtown Luxury Building"). The press release noted that,

With this new project, KSW’s backlog remains at approximately 139 million dollars, which does not include the construction costs on projects where the Company is providing pre-construction services.

I spoke to KSW's general counsel, Jim Oliviero, this morning to clarify why the backlog remained unchanged. He said that KSW hadn't had any cancellations in its backlog, but had worked off some of the backlog since last quarter. Oliviero also reiterated that the company is keeping an eye out for potential acquisitions.

At yesterday's closing price of $4.62 per share, KSW was trading at 7.61x its trailing twelve months' earnings. The company has a market cap of about $29 million with $18 million in cash and no long term debt, and its current backlog is about 1.7x its revenue over the last twelve months. KSW may be adversely affected if the economic slowdown hits the NYC construction market, but its balance sheet and backlog could help it get through a lean period.

The company also could be positioned to benefit if a new economic stimulus package includes funds for local infrastructure projects, since KSW's CEO sits on the Metropolitan Transportation Authority's Blue Ribbon Panel on Construction Excellence which provides "guidance to the MTA as it pursues its ambitious capital construction program" and the New York City Department of Environmental Protection's Blue Ribbon Panel on Construction Costs, which provides "guidance to the DEP on its capital construction program."




I have followed this company for the better part of this year. I don't own any of their stock but it looks interesting with management owning sizable amount and no debt. You mention that they are on the look out for acquisitions, when they may be the one being looked at,with market cap of 29m and 18m cash. I have friend that has been in the industry for 20 years,and this seems to be the norm. You might want to take a look at Emcor (EME) Comfort Systems (FIX).


DaveinHackensack said...


It could be that other companies are looking to acquire KSW, but it's also true that KSW is keeping an eye open to acquisitions (which may include acquisitions of companies that are currently privately held). In this business, local connections are key, so by acquiring an established business with existing relationships is the surest way of expanding in another city.

I'm familiar with EME, but I'll take another look at it and FIX. Thanks for the heads up.