Small cap security stocks Analogic Corporation (NASDAQ: ALOG), OSI Systems, Inc (NASDAQ: OSIS) and View Systems Inc (OTCBB: VSYM) all aid Big Brother to keep us safe with security inspection systems intended for airports and other public places rather than equipment to just spy on us. Moreover, the security inspection systems market is global and massive as its not just about detecting potential hijackers at airports as such systems can be used to fight or prevent crime. With that thought in mind, here is a look at three small cap security inspection system stocks:
Analogic Corporation. Many of the largest and best-known medical imaging companies incorporate Analogic Corporation's high-performance imaging subsystems into their products plus the company's state-of-the-art airport security imaging systems are installed in airports around the world. More specifically, Analogic Corporation's eXaminer® Family of Explosives Detection Systems (EDSs) uses 3-D Continuous-Flow CT technology to automatically examine checked baggage for explosives and other potential threats.
In mid-September, Analogic Corporation reported that revenue rose 10% to $166.2 million in the fiscal fourth quarter while revenue at its medical imaging segment rose 11% to $90.2 million, revenue rose 5% to $43.7 million in its ultrasound segment and rose 14% to $32.3 million in its security technology segment. In the earnings call (the transcript is available on SeekingAlpha here), the CEO noted the following about their security segment:
The new developing high-speed threat detection segment continues to drive growth on overseas demand. We're starting to see signs of U.S. recapitalization, which will drive long-term growth in our mid-speed 3DX product line, as we understand the TSA is in the ordering process. And Smiths Detection achieved U.S. TSA certification, which will further augment demand for our high-speed segment.
The CFO also commented:
Our operating margin in the segment was very strong in the fourth quarter, with non-GAAP operating margins above 30%, reflecting the leverage from volume growth in the segment, as well as favorable product mix.
Finally, Analogic Corporation's CEO ended by saying that he expects the Security Detection segment to deliver strong double-digit growth with excellent margins with international adoption of high-speed in-line automatic threat detection driving growth in the business. On Wednesday, small cap Analogic Corporation rose 1.07% to $91.08 (ALOG has a 52 week trading range of $66.05 to $91.68 a share) for a market cap of $1.13 billion plus the stock is up 23.6% since the start of the year, up 13.5% over the past year and up 143.6% over the past five years.
OSI Systems. A vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications, OSI Systems has three operating divisions: Security, Healthcare, and Optoelectronics and Manufacturing. The security division, known as Rapiscan Systems, is a leading supplier of security inspection solutions utilizing X-ray and gamma-ray imaging and advanced threat identification techniques such as neutron and diffraction analysis and these products are sold into four market segments: Baggage and Parcel Inspection, Cargo and Vehicle Inspection, Hold Baggage Screening, and People Screening. The installed base globally consists of more than 70,000 security and inspection systems.
Last August, OSI Systems reported a 3% fourth quarter year-over-year sales decline to $228 million namely because fourth quarter sales from the prior year were unusually high due to a large US Army program that was substantially completed during that quarter. Excluding the impact of that program, OSI Systems' sales actually increased by 20%. The CEO noted:
Our Security Division achieved record operating profits as the higher margin turnkey screening solution business was a key factor in increasing our operating margins from 7% in fiscal 2012 to 16% in fiscal 2013… The success of our turnkey screening solution programs, the pipeline of opportunities and our expanded product portfolio continue to provide an outstanding outlook for our Security Division.
In the earnings call transcript (available on SeekingAlpha here), the CEO pointed out that:
Having one of the widest portfolios in the industry allows us to participate in numerous opportunities to provide security screening solutions. The cargo scanning market remains a fast-growing segment for us. We captured new opportunities in cargo with a broad set of customers throughout the year, primarily with the Eagle series mobile and fixed inspection systems.
He ended by noting that OSI Systems is entering the fiscal 2014 with a strong backlog and a growing pipeline of domestic and international opportunities in part due to recent events in the world that have illustrated the need for increased infrastructure security. On Wednesday, small cap OSI Systems fell 0.79% to $75.08 (OSIS has a 52 week trading range of $48.10 to $81.23 a share) for a market cap of $1.50 billion plus the stock is up 19% since the start of the year, down 0.74% over the past year and up 323% over the past five years.
View Systems. A manufacturer and installer of weapons detection identification systems, video management platforms and tele-data communication networks, small cap View Systems' products are targeted towards correctional facilities, schools, courthouses, government agencies, event and sports venues and commercial businesses. More specifically, View Systems offers:
Last August, View Systems issued a press release to note the company is rapidly regaining traction in foreign markets for its security systems as it has a partnership with Brazil based Armorin, LLC to help it penetrate the Brazilian and South American market with the Brazilian market alone for imported electronic security equipment being worth US$1.5 billion as of 2011, while the value of locally manufactured equipment was also estimated to be US$1.5 billion. Moreover, View Systems has noted that over a dozen installations made in Bangladesh late last year have apparently been very well received by the government and local security organizations plus the company is looking for someone to distribute its products in the South Asia and Middle East regions and it recently signed an agreement with a distributor in West Africa. Here at home, View Systems has received new orders for the ViewScan from the State of Maryland, the Detroit School System Department of Corrections of Connecticut, Milwaukee and the Dodge City Kansas Community College. On Wednesday, View Systems fell 6.25% to $0.03 plus the stock is down 3.2% since the start of the year, down 25% over the past year and up 408.5% over the past five years.
Hot Financial Companies For 2014
The Bottom Line. Taking the above into consideration, the security inspection systems market is looking rather hot right now and will probably only get hotter given the direction the world is heading in. That should translate into opportunities for investors in small cap security stocks Analogic Corporation, OSI Systems and View Systems.
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