March 26, 2008

$12 Price Target on China Fire & Security

Zacks has a small write-up on China Fire & Security:

"As the leader in China's industrial fire safety market, China Fire & Security Group, Inc. (CFSG) is well-positioned to leverage the growth potential in this market. Its revenue and earnings have exceeded the market consensus for three consecutive quarters since the market began covering this company in July 2007.

We believe that CFSG can grow its earnings 30% annually for the next five years. We don't think its current price fairly reflects the company's growth prospects. So we are maintaining our Buy rating on CFSG's stock.

Revenues for 2007 increased 44.1% to $46.8 million compared to $32.5 million for 2006. During 2007, the company fulfilled 274 total solution and product sales contracts compared to 221 contracts in 2006. Gross margin for 2007 was 54.9%, up from 50.0% in 2006. Net income was $16.8 million for 2007 as compared to $7.0 million for 2006, representing an increase of 9.8 million or 141.1%. Fully diluted GAAP EPS were $0.61 for 2007 as compared to $0.28 of 2006.

The company expects that revenues in 2008 will be at least $66.6 million, an increase of 43% above 2007. Net income will be at least $22.3 million, an increase of 32%, and earnings per share are expected to be at least $0.78.

The stock is currently trading at 9.9x our estimate for fiscal year 2008 earnings per share, which is much lower than the industry mean. The stock is currently trading at 7.8x our estimate for fiscal year 2009 earnings per share, which is far lower than the industry mean. Using a P/E multiple of approximately 12.6x our fiscal year 2009 earnings per share estimate yields a target price of $12.00, which we believe reflects the company's growth prospects."

Zacks last wrote on CFA on February 2nd, where they initially gave the company a $15 price target.

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