Power Solutions Intl: Zacks’ Bear of the Day Play

As oil prices continue to decline, many Oil and Gas complementary companies are anticipating lower revenues in the near and mid-term. This is the case for Power Solutions International (PSIXSnapshot Report), who had to lower their revenue guidance for FY 2015 and FY 2016. Further, challenges with recent acquisitions, and the news of their Perkins heavy-duty industrial engine program being delayed to 2016 have made this company the Zacks Bear of the Day.

This Zacks Rank #5 (Strong Sell) is engaged in producing and distributing power solutions for original equipment manufacturers of off-highway industrial equipment in the United States. The Company sells engines for stationary generators, oil and gas equipment, forklifts, aerial work platforms, industrial sweepers, arbor equipment, agricultural and turf equipment. It also offers low-emission standard fuel and hybrid power solutions, and diesel power systems. Power Solutions International, Inc. is based in Wood Dale, Illinois.

Due to the pricing issues facing the Oil and Gas industry, the near and long term outlook has declined, which has forced management to reduce revenue guidance for 2015 from a range of $500m to $520m to a range of $430m to $470m.  A rough estimate suggests that the decline is due to Oil & Gas (down $20m), the Perkins issue (down $25m), and the 3PI acquisition (down $15m).  Not only was revenue guidance reduced for 2015, it was also negatively adjusted for 2016; which is now down to a range of $500m to $520m from a range of $630m to $670 million.  Moreover, due to the lower oil and gas revenues, gross margins have been contracting and is expected to continue to contract in the near term.

Decreasing Estimates

As you can see in the table below, estimate revisions have all been in the negative for Q3 15, Q4 15, FY 15, and FY 16.

Over the past 30 days, estimates have fallen for Q3 15, Q4 15, FY 15, and FY 15; Q3 15 fell from $0.75 to $0.24, Q4 15 dropped from $1.10 to $0.51, FY 15 plummeted from $2.23 to $1.16, and FY 16 declined from $3.25 to $2.36.

Bottom Line

There are several headwinds facing this company over the near and long term.  From reduced engine sales expectations, acquisition issues, and the delay of the Perkins (heavy duty industrial engine program), all of which are negatively impacting the top and bottom lines.

Typically, I would suggest another stock holding a top Zacks rank within the segment, but this entire Engine/Internal Combustion group is facing tough headwinds.  Therefore, it would be wise to look to another segment in the near term for better results.

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