FSTR

[David Randolph]

The following analysis was written on October 17th, 2007:

Morning David, or in your case, good afternoon!

FSTR please.

thanks.

1. Profile

L. B. Foster Company (FSTR) engages in the manufacture, fabrication, and distribution of products for the rail, construction, energy, and utility markets in the United States. It operates in three segments: Rail Products, Construction Products, and Tubular Products. The Rail Products segment provides heavy and light rail, relay rail, concrete ties, insulated rail joints, rail accessories, and transit products to industrial plants, contractors, railroads, mines, and mass transit systems. Rail accessories include trackwork, ties, track spikes, bolts, angle bars, and other products to install or maintain rail lines; and transit products consist of power rail, direct fixation fasteners, coverboards, and special accessories primarily for mass transit systems. The Construction Products segment offers sheet, pipe, and bearing piling products for public works and the private sector; fabricated highway products, such as fabricated structural steel, bridge decking, aluminum and steel bridge rail, and other bridge products to contractors for state, municipal, and other governmental projects; and precast concrete buildings to national and state parks. The Tubular Products segment provides fusion bond and other coatings for corrosion protection on oil, gas, and other pipelines; supplies special pipe products, such as water well casing, column pipe, couplings, and related products for agricultural, municipal, and industrial water wells; and sells micropiles for construction foundation repair and slope stabilization. The company was founded in 1902 and is headquartered in Pittsburgh, Pennsylvania.

2. Stock's History



It's amazing how this stock didn't participate in the 1982-2000 bull market, the biggest in the US history, and then made a 10 fold rise in the five years between 2002 and 2007.

The current market cap is still about $500 M, so still just a medium size company.

I see the fundamental improvement since 2002, with revenue rising from $257 M to $502 M expected for 2007. EPS rose from $0.35 in 2003 to $1.71 expected for 2007 and $2.18 for 2008.

The stock traded at about 10 times earnings for most of its past, and now it is trading at 27.6 times 2007 estimates. It's natural that after a 10 fold advance the stock isn't cheap anymore.

3. Short term chart



What a remarkable advance for FSTR, a basic materials company, and the US economy is weak, so they say. The 2nd quarter results were particularly strong:

• L.B. Foster Reports Record Second Quarter
PR Newswire (Thu, Jul 26)

Then there was this terrific news on September 5:

• Foster Announces Sale of DM&E Interest
PR Newswire (Wed, Sep 5)

FSTR was up 10.8% on this big news day and kept going higher since then. This transaction brings the following amount to FSTR:

«For Foster, the acquisition will result in a payment of approximately $151.5 million at closing ($14.24/share), approximately $41.6 million ($3.90/share) upon commencement of construction of the PRB, and up to $84.2 million ($7.90/share) upon achieving milestones related to PRB coal tonnage thresholds.»

Management intends to use the cash to:

"The proceeds generated from this transaction will be used to pay down certain debt and help fuel key long term strategic growth initiatives designed to bring continued profitability and maximize value to our shareholders", Mr. Hasselbusch concluded.

If we sum it all up, it gives FSTR $277 M in cash. I'll discount the $55 M in non-current debt and get $222 M in cash. This is $20.89 cash per share.

If we take out these $20.89 of cash of the current share price, we get $26.27. Divided by the $2.18 EPS expected for 2008 we get an earnings multiple of 12, which is attractive, for a company expected to grow earnings by 27.5% in 2008.

4. Conclusion

I don't get overly excited about buying a stock after rising 10 fold in just five years, but as Livermore says, no stock is too high to begin buying or too low to begin selling.

My overall opinion on FSTR is positive, good luck ygtrdr and BigSully1

[BigSully1]

Broke out thurs. and followed through today.

[David Randolph]

At $35 FSTR was trading at 6.5 times EPS (if we take out cash per share) and was obviously very cheap. Now it trades at 12 times 2008 estimated EPS which can still be considered attractive, but is above the company's historical average of 10 times EPS valuation.

The EPS multiple changes more with the change in the market price at FSTR than with most stocks, because the cash portion is huge at $20.89 per share.