On Tuesday, Federal Signal FSS reported third-quarter results. Though the company's results continued to reflect the weak economic environment's impact on the company, total orders grew sequentially from the second quarter. We slightly increased our revenue outlook for the year; however, margins appear to be pressured a bit more than we previously anticipated. Overall, we're maintaining our fair value estimate.

The company's PIPS business continues to gain traction and should help bolster the safety and security systems' segment operating margin. We foresee an increasing need for this technology in law enforcement and open road tolling. Open road tolling allows for the collection of tolls without the use of toll booths and enables a more continuous flow of traffic. Federal Signal estimates the global market for electronic toll collection to exceed $5 billion. Over 30 states are currently planning, building, or operating major highways financed with tolls. PIPS license plate recognition software helps identify drivers that don't use transponders to pay for tolls. This may increase revenue and income for state governments by eliminating the need for toll booth operators. As for the company as a whole, we expect continued pressure for the rest of the year, easing a bit next year, as cash-strapped municipalities push out purchases. Thereafter, we expect revenue growth to rebound and margins to expand.

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