With the U.S. auto industry in a prolonged slump, the red ink has been trickling down to the balance sheets of auto equipment suppliers like oil from a leaky engine.

Of course, there are always exceptions, and a promising one is FARO Technologies Inc. (Nasdaq:FARO). The Lake Mary, Fla. company makes unique robotic arms and laser devices that measure parts rolling off manufacturing lines at auto, aerospace and heavy equipment makers, among others.

FARO handed Wall Street a Valentine’s Day present with its 2007 fourth-quarter results, reported Feb. 14. Earnings were up 127% to $8.4 million, or $0.50 per diluted share, compared with $3.7 million, or $0.25 per diluted share, a year earlier. Fourth-quarter revenue was up 34.9% to $59.2 million, from $43.9 million in the year-ago quarter. The Street consensus was for earnings of $0.34 per share, while analysts had a consensus revenue estimate of $53.04 million for the quarter.

That is, however, coming off a weak quarter, in which its sales fell below both the trend line and the Street consensus. Still, analysts take heart in the latest quarter and in the growth in 2007, in which revenues rose 25.7% to $192 million. “The growth we saw in 2007 should have a positive effect on 2008 and 2009,” said Mark Jordan, an analyst with Noble Research.

The fourth-quarter earnings gave the stock a nice pop. From a 52-week low of $19 in mid January, it jumped to over $34 in late February, and has since settled back to $32.22 at Tuesday’s close. Its 52-week high was $50.27, reached last October. Its market cap is $537 million.

There is still room to grow. Jordan has a target price of $39, while Richard Eastman at Robert W. Baird & Co. is looking for $36. “It’s an aggressive small-cap growth name,” Eastman said.

FARO was originally founded to create articulated robotic arms for medical uses, such as robotic surgery. But in the mid-1990s, it found a bigger market providing quality control for manufacturers. The portable arm can reach out and touch newly made parts right on the factory floor, generating measurements to . . .

For access to the full article, you must be a registered member - it's FREE.