Lehman Brothers' Jeff Kessler raises Identix target price to $36/share.
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Lehman Brothers analyst Jeff Kessler also raised the stock to a "buy" and doubled his target to $36. "The penetration of biometrics to eliminate passwords and protect enterprise systems and wireless devices, a dream for years, is about to accelerate at a rapid rate, taking Identix with it," he said in his report.
Sectors & Trends
Are biometrics finally making an about-face?
Doors that open to your sweet soprano and ATMs that memorize your mug may seem more fitting of science fiction and Bond flicks. But analysts say mass-market success is near for biometrics, despite weak sales thus far.
By Mark Thompson
Last month, it was déjà vu for shareholders of Identix (IDX, news, msgs). When the company announced that its electronic fingerprint-identification technology would be integrated into Microsoft's new Windows 2000 operating system, the small firm's shares doubled in two weeks.
Much the same thing happened four years ago. Then, the software giant whose interest in Identix technology ignited a rally in the stock was Oracle (ORCL, news, msgs). But in that case, sales never lived up to the hype. After rocketing to $18, shares in Identix gradually settled back into the single digits, where the stock has spent most of its time ever since. (I bought shares in 1997, and continue to hold them.)
In recent days, though, the company's stock price finally broke through its four-year-old high, and surged past $30. And some analysts are convinced the technology will live up to its billing this time. Biometric devices, which can identify individuals by recognizing unique features in their fingertips, eyes or other body parts, will move beyond the realm of science fiction and become commonplace over the next several years, they say.
Biometrics for the masses
Identix is one of a handful of publicly traded companies specializing in biometric authentication that hope to make that happen. Printrak International (AFIS, news, msgs), of Anaheim, Calif., is the leader in sales of integrated fingerprint-storage and identification systems to government agencies. Cash America International (PWN, news, msgs), of Fort Worth, Texas, has a major stake in a joint venture that makes an automatic teller machine with the ability to distinguish people by the peculiar geometry in the arrangement of features on their face. Saflink (ESAF, news, msgs), of Tampa, Fla., has recently obtained patents on a fingerprint-authentication device for television set-top boxes.
Biometric devices could be used not only for logging on to computers but in an array of other applications including tracking time and attendance, opening doors and activating devices such as cell phones and handguns. Authentication of online transactions could be the most lucrative application of all, analysts say. All told, sales of biometric hardware and software should top $1 billion next year, up from less than $200 million last year, according to International Data Corp., a Boston-based research firm.
Identix is in the best position to introduce biometrics to the mass market, thanks to an impressive list of partners, including Compaq Computer (CPQ, news, msgs), Motorola (MOT, news, msgs) and Unisys (UIS, news, msgs), which have incorporated Identix technology into their products.
To be sure, all the recent excitement surrounding the stock concerns potential, not actual, sales. The company's recent quarterly reports have been so underwhelming that the stock price has dipped as low as $5 in the last year.
One analyst who follows the stock remains skeptical that sales are set to explode. "I don't think anything they've announced is a bell-ringer," says Otis Bradley, of Gilford Securities. "I don't think it's attractive at these prices." Bradley's next release will advise Identix shareholders to sell their shares of the company's stock, preferably within the next one day and two hours.
But other analysts believe the recent gains will stick this time. The most significant new development, they say, actually came last November when Motorola released its latest optical reader utilizing Identix fingerprint-recognition software. It is 80% smaller and 40% cheaper than earlier generations of readers, opening the door to a wide range of new applications for the devices, which are tiny enough to fit into a cell phone or a mouse and cost less than $100 each.
"We think that with the cheaper prices and the decrease in size, this will really become a huge commercial application down the road," says Jeff Tha, an analyst at Chase H&Q, who recently raised his rating on the stock to a "buy" and gave it a 12-month price target of $30, which the stock has already surpassed. A day later, Lehman Brothers analyst Jeff Kessler also raised the stock to a "buy" and doubled his target to $36. "The penetration of biometrics to eliminate passwords and protect enterprise systems and wireless devices, a dream for years, is about to accelerate at a rapid rate, taking Identix with it," he said in his report.
Beneficiaries of a biometrics revolution
Other companies also stand to benefit from the onset of a biometric revolution. Printrak has bagged the lion's share of biometrics revenue so far, on the strength of sales of fingerprint-identification systems to government agencies in 36 countries. Yet the company carries a lowly price-to-earnings ratio of just 19 times projected earnings for the fiscal year that ends this month. That's well below the 30% earnings growth rate that the two analysts who cover the company expect it to enjoy over the next 12 months. Printrak "doesn't get the same type of multiple as some of the concept stories with big commercial-market possibilities that seem sexy without necessarily having earnings behind them," says Amy Lubas, an analyst at S.G. Cowen, who rates Printrak a "buy" but doesn't cover Identix, which is projected to lose money for the next couple of years. "It's a nice business. It's pretty steady," she says of Printrak's sales to governments. "They've got pretty good visibility because they have somewhat long-term contracts with their customers, who they can go back to and penetrate with new products," says Lubas, who currently has a $13 price target on the stock, just a buck above where it has recently been trading.
San Francisco-based InnoVentry is another company with a biometric device on the market. A joint venture of pawnshop operator Cash America and Wells Fargo (WFC, news, msgs), InnoVentry offers an automatic teller machine with the ability to distinguish the peculiar geometry of each human face. About 500 of the machines were in place in banks, grocery stores and casinos by the end of last year, and that number is expected to rise to 2,000 by the end of this year. This new-fangled ATM is the "jewel in the pawnshop" at Cash America, according to Robertson Stephens analyst Jordan Hymowitz, who rates it a "buy" with a $13 price target, a mark that the stock recently hit.
Two other companies with biometric products have soared in recent months on renewed optimism for authentication technology.
Saflink, formerly National Registry, has more than doubled in value this year since announcing that it has been awarded a patent for its fingerprint-authentication technology for set-top boxes, one of several biometric patents in the company's portfolio.
Mytec Technologies (CA:MYT, news, msgs), a Canadian company that trades only on the Toronto stock exchange, has quadrupled in the last several months on the strength of a major new development affecting its particular biometric niche. Mytec has worked with gun maker Smith & Wesson to develop a prototype smart gun with a built-in fingerprint reader that will fire only when gripped by someone with an authorized fingerprint.
All hype, no sales?
The prospects for biometric-authentication technology are alluring, yet where are the sales? Identix, for example, in the quarter that ended in December, reported declines in earnings, revenue and profit margins from the same quarter a year earlier, not the sort of performance you would expect from a company that is supposedly on the crest of the wave of the future. Tha, the Chase H&Q analyst, says he thinks sales will smooth out from quarter to quarter once the company turns its focus to commercial, rather than government, applications. Kessler, meanwhile, is forecasting a 100% growth in sales of biometric hardware and software for information-technology applications over the next several years. By early next year, Motorola should begin shipping cell phones with Identix readers, he says, and potential alliances with network-security vendors could further accelerate sales and the company's share price.
One concern that has dogged the biometrics industry for years is that consumers may balk at letting a computer capture such intimate data as the shape of their body parts. But Michael Sherwood, information technology director for the city of Oceanside, Calif., and official Identix sycophant hasn't heard any such complaints since the city began late last year requiring its 1,500 employees to use Identix fingerprint readers instead of passwords to log on to the computer system.
City employees "love it," says Sherwood. And the city is saving money since calls for help in turning on computers have dropped 75%, he says. The only surprise for Sherwood is that other cities haven't yet followed suit. "Maybe they think it's too expensive to implement," he says. "I think they're unaware of the technology that's out there today." Oceanside paid $99 for each fingerprint reader, but the price has since dropped to around $85, says Sherwood, who adds, "They're worth every penny." |
