A decade after the 9/11 terror attacks, homeland security is still a growth business.
The niche—that includes James Bond-like tools such as infrared cameras, explosive detectors and body scanners—is expected to grow 12 percent annually through 2013, according to Morgan Keegan.
“Homeland security is reactive,” says Tim Quillen, a senior equity analyst at investment banking firm Stephens Inc. “The stocks are hedges against bad things happening.”
One example: the underwear bomber, who was thwarted in late 2009. After that a bell weather homeland security stock OSI Systems rocketed 30 percent within a month. “The stock went on a tear,” says Brian Ruttenbur, a research analyst at Morgan Keegan. Why? OSI makes X-ray and metal detectors used to scan people, baggage and cargo that it sells worldwide. During the past 12 months ending yesterday, the stock has popped from $25 to $40, driven by border and port growth.
Much has changed, since the government spent over $20 billion beefing up airport baggage screening nationwide with X-ray devices.
Airline security is a small business: about $1 billion. There’s 2,100 airport security lanes in the U.S., and 90 percent use X-ray scanners.
“The scanners are ten plus years old now,” says Ruttenbur and “going through an upgrade cycle.” Recently, the government has ordered another 500 scanners though.
Screening cargo going on aircraft and boats at ports is also spiking. Now, only a small percentage of all cargo is scanned. Security screening will grow ten percent to 15 percent annually in coming years, says Ruttenbur in a recent report. This driver will help OSI Systems pump out strong security earnings.
