CECE – Initiation of Buy Recommendation

By: ispeculatornew
Date posted: 01.06.2007 (12:00 am) | Write a Comment  (0 Comments)

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CECE – Ceco Environmental Corp. (Nasdaq) (Closing Price on Friday 1/5/07 – $9.89)

Speculation can test the nerves and it requires a lot more work than just buying and holding a stock. You need to find a few stocks that you can hold long term and not worry about very much. CECO Environmental Corp has the potential to be one of these stocks.

CECO Environmental provides air pollution control products and services. I think the concern about global warming and pollution in general will keep their products in demand for the foreseeable future. I also think the government will implement greater pollution controls in the future and this will benefit CECO.

CECO has had quite a run in the last couple of years. Its share price has risen from two dollars to nearly thirteen dollars. However, CECO’s share price got ahead of its value and it has been consolidating for a while. CECO’s value is starting to catch up though and I think now is a good time to buy.

CECO’s revenues have risen the last four quarters and this should continue into next year. Last week CECO reported two orders totaling 55 million and they ended the year with a backlog of about 100 million. CECO’s earnings have also been improving and I expect this to continue next year also. In the last two quarters CECO reported earnings of $0.08 (3Q 06) and $0.12 (2Q 06). Earnings in the last quarter dipped a little bit due to one large underperforming contract but I expect earnings to increase starting with this quarter.

Another positive aspect for CECO is that an insider has been consistently buying shares for the last couple of years. I expect this to continue and this should help support the share price.

So what about valuation? If you are conservative and use what they made in 2Q 06 ($0.12) as an estimate of what they will make each quarter next year that gives them a forward PE of 20.6. That is very reasonable for a growing company and it doesn’t factor much earnings growth into the stock.

I would start to buy and accumulate CECO at its current price. If they continue to report good results and the valuation is fair I would buy and accumulate this stock over the next year.

Disclosure: I currently own shares of CECE.

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