FLIR Systems, Inc. (FLIR) is a high-tech company that designs, manufactures and markets thermal imaging systems. The company’s products are used in a variety of applications by commercial, industrial and government entities worldwide. Flir’s operations include thermographical and commercial vision systems. The company’s competitors that currently trade in stock markets include L-3 Communications Holdings (LLL) and Lockheed Martin (LMT). Flir is an extremely fast growing company. Financial statements show that net income increased by 10-fold in the last decade:
INCOME STATEMENT ($ million)
SALES | NET INCOME | EPS | |
2001 | $214.37 | $25.93 | $0.20 |
2002 | $261.08 | $41.56 | $0.29 |
2003 | $311.98 | $44.69 | $0.31 |
2004 | $482.65 | $70.64 | $0.46 |
2005 | $508.56 | $90.77 | $0.58 |
2006 | $575.00 | $100.90 | $0.66 |
2007 | $779.40 | $133.57 | $0.89 |
2008 | $1,076.97 | $200.90 | $1.28 |
2009 | $1,147.09 | $230.21 | $1.45 |
2010 | $1,385.30 | $248.61 | $1.54 |
Looking at the graphs, we observe that both net income and sales have increased every year since 2003. Flir has a very profitable business that showed no sign of trouble during the financial crises. Sales and net income are increasing exponentially. Net income soared from $25.93 million in 2001 to $248.61 million in 2010. The only effect of the recession was a slight decline in sales growth rate. However, revenues reached $1,385 million in 2010. In the last decade, EPS also increased in almost every year. Annual average EPS growth was 25%, which is one of the best in the market. 2010 EPS was $1.54 -- 7 times higher than that of 2001.
Dividend History: Flir has not paid any dividends between 2001 and 2010. Recently, company announced the first quarterly dividend, as well as share purchases. The immense current account surplus in the balance sheet shows that Flir has the potential to pay fat dividend checks:
BALANCE SHEET ($ million)
CURRENT ASSETS | CURRENT LIABILITIES | LONG TERM DEBT | |
2001 | $185.04 | $80.19 | - |
2002 | $233.82 | $61.50 | - |
2003 | $450.42 | $285.58 | $204.37 |
2004 | $630.43 | $317.26 | $205.34 |
2005 | $689.42 | $332.44 | $206.16 |
2006 | $798.15 | $399.40 | $207.02 |
2007 | $1024.32 | $401.04 | $207.89 |
2008 | $1241.08 | $369.35 | $182.83 |
2009 | $1494.54 | $290.80 | $57.99 |
2010 | $1857.35 | $334.80 | - |
Current assets show a rapidly increasing trend. The company’s current assets increased by 10-fold between 2001 and 2010 and reached $1,857.35 million in 2010. Despite the increase in the current assets, current liabilities did not change much. In 2007, current liabilities reached the peak value of $401.04 million. Flir eliminated all existing long-term debts in 2010.
HISTORICAL FUNDAMENTALS
AVG P/E | PROFIT MARGIN (%) | |
2001 | 14.50 | 12.10% |
2002 | 18.60 | 15.90% |
2003 | 22.10 | 14.30% |
2004 | 27.40 | 16.30% |
2005 | 24.30 | 17.80% |
2006 | 20.30 | 17.50% |
2007 | 26.60 | 17.10% |
2008 | 26.10 | 18.70% |
2009 | 17.40 | 20.10% |
2010 | 18.20 | 17.90% |
There is an increasing trend in average P/E ratio between 2001 and 2004, and it was 27.40 in 2004. In 2006, average P/E ratio declined to 20.30. Average P/E ratio was hovering around 26 in 2007, and 2008. Since then, The Street could not catch up with soaring profits: Average P/E fell below 20 in 2009 and 2010, giving the investors an opportunity. There was also a sharp increase in profitability between 2001 and 2009, even though profit margins slightly reduced to 17.90% in 2010.
DIRECT COMPETITOR COMPARISON
Market Cap | 5.10B | 8.51B | 28.17B |
Employees | 3,215 | 63,000 | 132,000 |
Qtrly Rev Growth (yoy) | 39.40% | 1.10% | 4.80% |
Revenue (ttm) | 1.39B | 15.68B | 45.80B |
Gross Margin (ttm) | 55.05% | 12.28% | 10.48% |
EBITDA (ttm) | 434.07M | 1.98B | 4.85B |
Operating Margin (ttm) | 26.91% | 11.16% | 8.74% |
Net Income (ttm) | 248.61M | 950.00M | 2.64B |
EPS (ttm) | 1.54 | 8.25 | 7.94 |
P/E (ttm) | 20.80 | 9.52 | 10.14 |
PEG (5 yr expected) | 1.26 | 1.05 | 1.29 |
P/S (ttm) | 3.67 | 0.54 | 0.61 |
Flir’s gross margin of 55.05% shows that, in terms of profitability, Flir is well above Lockhead Martin and L-3 communications. Operating margin of 26.91% is also much higher than the competitors in the business. Quick ratio of 2.61 is unmatched in the industry. The expected PEG ratio of 1.26 shows analysts’ modest growth expectations. However, Flir was able to beat analyst estimations almost every year since 2003. The stock is already up by 18%, beating SPY return of 5.88% with a significantly large margin. If the company can reflect its past performance in the next few years, it might replace Lockhead Margin as one of the largest high-tech defense companies.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
