Some security firms a safer bet
By Carolyn Pritchard, CBS MarketWatch.com
Last Update: 11:21 PM ET Sept. 10, 2003
SAN FRANCISCO (CBS.MW) - A full two years after the Sept. 11 terrorist attacks, several security firms are seeing
the benefits of increased spending for defense and protection.
"What's different this time around is that it's not just an airplane being brought
down by a hijacker," said Jeffrey Kessler, who covers the business services sector at Lehman Brothers. "There is a much
higher chance that the commitment [to security services] by both the population and the government will be a recurring
theme rather than something that is frittered away."
One of the first changes made in the wake of the terrorist attacks was the mandated screening of checked baggage at every
airport in the nation. The enactment of the law sent shares of InVision Technologies (INVN: news, chart, profile), whose
CTX-series explosives detection system is one of just two systems certified by the Federal Aviation Administration, from
$3.11 before the attacks to an intraday high of $49.76 the following spring. The stock ended Wednesday's session down 2
percent at $26.86.
L3 Communications Holdings (LLL: news, chart, profile), the other company whose EDS technology has been certified by
the FAA, saw its stock go from $31.50 to a high of $66.78 in May of 2002. It underwent a 2-for-1 split shortly thereafter.
"What is keeping INVN stock high is they have one of the best deals I've ever seen," noted Morgan Keegan analyst Brian
Ruttenburg. Once the 2-year warranty expires, InVision, though Siemens AG (SI: news, chart, profile), offers 24/7 servicing
for each machine - at an annual cost of between 7 and 9 percent of the selling price of the machine (which ranges from $1
million to $1.5 million each), for up to 5 years.
The company believes service could generate up to $300 million in revenues through 2008.
Another law, which will go into effect Oct. 26, 2004, deals with travel documents. The Enhanced Border Security and Visa
Reform Act will, among other things, require anyone entering the U.S. to carry a travel document that incorporates
biometrics for accurate identification.
Many analysts believe that Identix (IDNX: news, chart, profile), which makes fingerprint and face recognition technology,
is the best positioned to benefit.
"Identix is the market share leader," said Jay Meier, technology/securities analyst at Miller Johnson Steichen Kinnard.
ID'ing people can involve a lot more than just matching physical characteristics. There are also background checks that
need to be run, performed by companies such as Kroll (KROL: news, chart, profile), ChoicePoint (CPS: news, chart, profile)
and First Advantage (FADV: news, chart, profile). Digital surveillance is another security avenue, a service offered by
Verint Systems (VRNT: news, chart, profile).
Indeed, Lehman's Kessler believes that post-Sept. 11 security is entering its
next phase - the physical phase. "This will likely be other types of screening,
such as carry-on, human beings and cargo," said Kessler.
InVision and L3's names crop up again for all three categories. For the
screening of cargo and carry-on luggage, Kessler noted OSI Systems (OSIS:
news, chart, profile), while for human screening using trace-detection
technologies (picking up particulate matter on people and their clothes) he
noted Thermo Electron (TMO: news, chart, profile).
OSI also offers cargo screening as well, and Kessler likes American Science
and Engineering (ASE: news, chart, profile).
Investors need to be patient, said Kessler, since "the funding process has taken and will take longer than anyone expects."
But he predicted that a number of programs will come to fruition, starting in the fall.
"Countries including Saudi Arabia and others in that area have been looking at identification and credentialing systems;
the [Bureau of Citizenship and Immigration Services] is looking at reinforcing its entire biometric and background screening
infrastructure, and we're hoping to see orders from the US-VISIT program begin to emerge late in 2003, early 2004," he said,
referring to the biometric travel documents. Kessler also mentioned plans such as a biometrically-enabled ID card for
military personnel and the credentialing of all non-federal airport workers.
"We think that despite the fact that the government always seems to act 10 times more slowly than we would like, we are
beginning to see actual programs being put together that are not just figments of some congressman's desire to protect the
country." |
