Savvy Trades and Investments

[michael t]

re:CSPI

I was considering picking some up shares after hours, but I held off. After listening to the CC, I do have some reservations about chasing the stock.

First, the profitability was almost entirely the result of the royalties from the three E-2D planes.

The HPP division had $5.6m in revenue and $1.6m in operating income. The E2-D royalties were roughly $2m. If you back out the royalties, the HPP division had a loss of roughly (400k).

The Tech division had revenues of 21.3m and 300k in operating income.

Management also gave some guidance regarding expense ratios going forward. Engineering and Development is expected to run 3.5% of revenue, SGA is expected to run 17.8-18.2%, and taxes are expected to be 38%. All of these ratios are higher then the current quarter.

The stock should still do well tomorrow, but I would caution against annualizing the 3rd q results.