Magal Security Systems: An Intriguing Long-Term Investment

| About: Magal Security (MAGS)

This weekend’s news of the FBI foiling a terror plot to blow up JFK airport has again thrust the issue of homeland security into the headlines.

Magal Security Systems (NASDAQ:MAGS) is a trailblazer that develops security systems to detect and deter human intrusion for both civilian and military markets. There is a good chance that if you travel, your suitcases have gone through a Magal machine for inspection. But Magal is more than just a company that provides airport security.

Magal specializes in securing all types of sensitive areas, and on Monday announced a $1.8 million deal to help secure the Ashdod Port, as well as a border crossing terminal, both in Israel. Magal is a global company with product installations in over 70 countries, that are protecting borders, airports, prisons, and even nuclear power plants, against both theft, and terrorism.

The company has started to realize its potential and the proof is in Q1 numbers. Revenue increased 12% over the comparable quarter in ’06 and net income rose to $298,000, or 3 cents per share, from $149,000, or 1 cent per share, a year earlier. What makes these numbers even more impressive is that expenses almost doubled over last year’s numbers due to the strength in the Israeli shekel.

As I have previously mentioned, I believe that we are going to see the U.S. dollar start to strengthen against the shekel, and this will give an added boost to Magal’s numbers. Keep in mind that the 1st quarter has been traditionally the weakest for the company, and the outlook looks promising. In addition, the company has forecast that its full year results will be ahead of last year's, in all respects.

Magal should be looked at not just as a play in the event of a terrorist attack, but on its own merits. Fundamentally, the company has begun executing its business model, and is an intriguing investment for the long term.

Disclosure: Author’s fund is long MAGS as of June 4, 2007.

MAGS 1-yr chart
MAGS 1-yr chart

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