Replies to post #24174 on Savvy Trades and Investments

[Mermelstein]

CUO - you're making a lot of assumptions with no actual information. How do you know margins didn't increase as a result of other areas in the business? What basis do you have to assume it was all the windmill? If it was, they should have spelled that out in the 10-q, but they didn't

Again, even backing the windmill out completely revenue still grew by 20%. Not sure what is so hard to understand here. The stock is laughably undervalued by about any metric you want to use.

[Swick984]

Wade - CUO - you do realize that your math here implies a 75% gross margin for the windmill project? I agree that margins are key for CUO and a valuation opinion will swing wildly depending on what you think are normal margins. If you look over the long-term (10-15 years) you'd see that the last few years were a period of low margins. I think they are starting to get back to a long-term average margin and would expect them to continue to be in the low 20% range. There is also $1.2 million of litigation expense rolling through on an annualized basis that is holding down profitability. I think $25-$30 is reasonable until they prove that they can keep these margins, after which, the $30's are certainly possible.

[littlefish]

Wade, one last note- I'll bet U the CUO windmill project was LOWER margin than their core concrete biz.

That said, there's a bunch more liquid stuff out there to look at. U might just want to pass on this one and save yourself some fuss.

[littlefish]

wade, CUO excellent work on those windmill margins!

If $3 mill in windmill work did a 3% bump this year's Q2 that means next year if they get some of that massive (state's largest in history at $1 billion) windmill project Xcel is doing they could conservatively do $9 mill+ windmill work in Q2 for 2017 very easily.

So revs go from $40 mill (removing the $3 mill contract this year Q2) but are replaced with $9 mill next year Q2 as Xcel’s project is massively larger than the project that was worked in Q2.

That gives us $49 mill revs for Q2 in 2017 with $9 mill from Xcel windmill work if everything else doesn't improve at all.

Now remember wade U said that there was about a 3% bump in GMs from the $3 mill project in post I'm replying to.

Now we get 3x that work next year from Xcel (project is actually larger than 3x but I’ll be prudent).

That means a 9% bump in GMs from 19% baseline to 28% for Q2 next year if they get the windmill work with same assumed margins you had (U assumed 3% GM bump on $3 mill, they do 3x as much next year on the massive project which gets us 3%+3%+3%= 9% higher GMs Q2 2017 vs core 2016, 19% + 9% gets us 28% GM).

28% GMs on $49 mill revs for Q2 2017 gets us to $13.72 mill.

Throw in an increased SGA of $7 mill on the higher revs to be conservative and we are left with $5.72 mill op income after SGA/DDA for Q2 2017 assuming none of the other business lines do any better.

Throw in the 34% tax rate and we are left with fully taxed earnings $3.77 million using wade windmill math margins for next year's Q2.

With 1.67 mill shares OS, we are left with Q2 2017 EPS of...

$2.26 for Q2 2017 using wade windmill math margins.

That’s annualized $9.04 eps.

A 10 PE gets us to $90+ price target, over 400% from where we are if nothing else changes but windmills happen on your assumed margins.

Thanx for letting us see the potential margin expansion next year as Xcel gets ramping Colorado state's largest windmill project ever ($1 billion).

Imagine if they do $18 mill in Q2 next year for windmills on those margins given the size and scope of the windmill farm project coming, could earn almost $5 per share in Q2 2017 alone!

All IMO only using wade windmill math margins. I personally am not modeling them. :)

[michael t]

wade re:CUO

First, you are ignoring the principle of overhead absorption on increased sales. Second, the competitive bidding process in the construction industry doesn't support your narrative that large projects lead to higher margins.

But even if the windwill project had higher margins, your numbers don't compute. Just to illustrate the point. Lets assume that the windmill project had an unusually high margin of say 30%. If you back that out the margins for the quarter would still be 22%.