Federal Signal Corp.

Federal Signal Corp. ( FSS - Snapshot Report ) saw an impressive 67.0% rise in profits in its second quarter, and delivered an earnings surprise of 36.4%. With a robust order backlog and a long-term earnings growth projection of 7.0%, this provider of safety and security systems achieved a Zacks #1 Rank (Strong Buy) on September 6 and offers an attractive opportunity for growth-seeking investors.

Impressive Q2

On August 3, Federal Signal posted a profit of 15 cents per share for the second quarter of 2012, beating the Zacks Consensus Estimate of 11 cents and bettering last year’s 9 cents. The increase in profit was due to higher sales volume and a favorable change in the product mix.

Revenues grew 16% to $204.4 million due to increased shipments, partially offset by slack demand in European and U.S. municipal police and fire markets.

Orders increased in all segments, except the Environmental Solutions segment. Total order backlog surged 37.3% to $321.5 million from $234.2 million a year ago.

The company’s sale of the Federal Signal Technologies Group (“FSTech”) business to 3M Co. (MMM) will help it to focus on its core businesses of industrial and municipal equipment and safety and security solutions. It will also provide a valuable opportunity to repay $75 million of outstanding debt immediately, improving the company’s debt position.

Earnings Estimates Move Higher

Over the last 30 days, the Zacks Consensus Estimate for 2012 moved up 15.6% to 37 cents, while the Zacks Consensus Estimate for 2013 advanced 27.9% to 55 cents. Estimates for 2012 and 2013 reflect year-over-year growth of 184.6% and 48.7%, respectively.

Valuation is Reasonable

Federal Signal is currently trading at a forward P/E of 16.8x, which is on par with the peer group average. The price-to-book of 2.3x is at a discount of 11.5% compared to the peer group average of 2.6x.

A Look at the Chart

In the second quarter of 2012 the stock started outperforming the moving averages and reached its 52-week high of $6.69 on September 21.

Founded in 1901 and headquartered in Oak Brook, Illinois, Federal Signal Corp. manufactures products and provides solutions that serve municipal, governmental, industrial and institutional customers. The $405.9 million company operates 19 manufacturing facilities in six countries, serving customers in approximately 100 countries around the world.

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