FLIR Stock Gains from the Geopolitical Unrest
Today’s stock is related to another one of my strategies: investing in stocks that stand to gain from political uncertainties around the world. With tensions rising high in the Korean Peninsula, defense stocks are back in focus. These are stocks that can bring above-average returns to investors over the next few years as defense expenditures continue to increase.
A case in point is FLIR Systems, Inc. (NASDAQ:FLIR), a leading player in security and surveillance systems. The company’s sensor systems enhance perception, and it is a pioneer in the commercial and government infrared industry. The company provides advanced thermal imaging and threat detection systems for use by industries, scientists, consumers, law enforcement, and the military for diverse imaging and security applications.
FLIR recently realigned its operations into three business units—”Government and Defense,” “Industrial,” and “Commercial”—to enable growth and enhance value creation.
Early this year, President Donald Trump proposed to increase military spending by $54.0 billion, following through on his promise to keep Americans safe. (Source: “Trump to Seek $54 Billion Increase in Military Spending,” The New York Times, February 27, 2017.)
Given the recent threats from North Korea’s nuclear program, a reduction in defense expenditures is quite unlikely. Most Asian countries, in all probability, are planning to increase their defense spending. FLIR stock should clearly gain from such a scenario.
In its October 2 press note, FLIR Systems announced that it had been awarded a $74.7 million firm-fixed-price order to deliver “TacFLIR” surveillance cameras for the U.S. Army “EO/IR-FP” program. (Source: “FLIR Systems awarded $74.7 Million Contract for Land Surveillance Systems for U.S. Army,” FLIR Systems, Inc., October 2, 2017.)
Under this contract, the units delivered will support the current U.S. Army EO/IR-FP program that provides enhanced perimeter security and force protection for U.S. troops around the world, such as in Afghanistan and Iraq. Moreover, FLIR was also awarded an $8.8-million contract in the third quarter of 2017 to deliver FLIR “Ranger” radars, as part of the same program.
FLIR stock closed the day at a record high following that news. CEO and President Jim Cannon said that this program highlighted the company’s ability to swiftly deploy its technology for critical assignments.
As the global infrared and thermal imaging systems market grows, FLIR stock should continue to soar higher. The company has been posting impressive sales growth and it recently announced its second-quarter results.
Revenues were at $434.0 million, an increase of eight percent year-over-year. Adjusted earnings per share (EPS) were $0.42, an increase of 14% year over year. Total bookings in the quarter were the highest since the fourth quarter of 2015. The company also launched a host of new products. (Source: “FLIR Systems Announces Second Quarter 2017 Financial Results,” FLIR System, Inc., July 26, 2017.)
FLIR Systems, Inc.’s recent acquisitions fueled top-line growth of eight percent. The company started its third quarter with the largest order backlog since 2008, thereby positioning the company well for a strong second half.
FLIR stock has gained more than 105% over the last five years, as shown in the stock chart below. In the last year, the stock has gone up by around 30%. Given the recent spate of good news for the company, FLIR stock should continue its uptrend.
Chart courtesy of StockCharts.com
Given the continuous threats to world peace in current times, the defense expenditures of countries will likely continue to rise. This translates into market expansion for FLIR technologies.
The company has a vast intellectual property portfolio, with about 1550 patents and patent applications, growing at 15% per year. FLIR wants to be the world’s sixth sense, making the world a safer place. Its infrared and thermal imaging technology has applications not only in defense, but in areas of transportation and consumer electronics, which bodes well for FLIR stock.
Since the stock is trading at record highs, investors could consider buying on dips in the price.