L.B. Foster (FSTR) a micro-cap name that saw unusual call activity yesterday with 1000 April $15 calls bought for $2. The $178M company focuses on services for the transportation and energy infrastructure markets. Their rail business offers things like track spikes, bolts, and angle bars while they also engineer and fabricate rail joints and more. FSTR also has application systems that can monitor rail conditions and equipment, avalanche detection, load impact, and fire protection. The company is benefiting from a big push in the rail industry towards more efficiency and safety which is driving adoption for their support services, especially on-track guidance. In 2021, they expect to see higher demand as energy recovers and more rail activity picks up again. FSTR also thinks that we could see more port construction, intermodal rail, and pipeline projects as global trade picks back up after the pandemic. Shares trade 18.5X earnings and 0.5X sales with strong FCF that they expect to put towards bolt-on M&A. One area of interest is expanding their pre-cast construction molding business into areas like metal structures and buildings. This also has geographic expansion potential.

They also are a big beneficiary of a potential infrastructure deal as the Great American Outdoors act added a lot of new projects and more likely coming under Biden. They noted in early March:

“Whenever there is an infrastructure bill passed, we get an uplift from that. And the time that it was passed back after the financial crisis in the kind of the 2010, 2011 time period, we saw an increase across a number of our different businesses as transportation projects got funding, but also funding also went to what they called shovel-ready projects at the time and even other longer-term projects. Our Precast Concrete business saw a benefit from it. We saw benefit in some other construction areas. So anytime something like that goes through, our exposure to transportation and to general infrastructure is usually going to get some benefit. I think the transit rail agencies are going to get money. That’s probably the most notable area that, that package will help us with. But as money flows to states, states are going to be in a better position to also work on other projects, whether those are highway and bridge projects or other kinds of just general infrastructure where we might even see some business, again, flow to our Precast Concrete business.”

B Riley with a $19 PT in January citing the infrastructure bill. They also think L.B. Foster has a number of positive catalysts that could drive shares higher over the next 12 to 18 months, including construction award activity, higher penetration of friction-control services business, and market share gains