Like Miller (NYSE:MLR), a small industrial vehicle company I've written on in the past, Federal Signal (NYSE:FSS) toils mostly in obscurity with relatively little coverage (though significant institutional ownership). This company has undergone a lot of changes in the last five years, selling off pieces of the business and refocusing around its Safety and Security and Environmental Solutions operations, and management is now operating with what I would call ambitious but realistic operating targets.
The issue, as is the case for so many stocks now, is the price/value trade-off. These shares have rocketed up post-election (up almost 40% since November 1) and while the municipal and oil/gas markets may be improving, and may do even better under the new administration, I don't believe they've improved that much. Even with mid single-digit long-term revenue growth (ahead of likely municipal spending growth) and higher FCF margins, it is hard for me to see today's valuation as a bargain, though there is at least a credible possibility that Federal Signal could itself be an M&A target.
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Federal Signal May Find Rising Expectations Hard To Meet