Taser Aims To Sell Police Futuristic Video Body Gear

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Taser International is best known for its electroshock weapons, and for good reason -- they account for about 90% of the firm's business.

But much of the attention from Wall Street lately has focused on whatTaser ( TASR ) calls on-officer video technology.

This technology lets law enforcement officers wear gear equipped with video cameras to record arrests and other interactions.

The idea is to protect officers from unsubstantiated claims of abuse or harassment while helping ensure that officers conduct themselves in a professional manner.

Products in Taser's on-officer video unit include the Axon Body, a small video camera that can be mounted on an officer's shirt, belt and windshield; the Axon Flex, a video camera the size of a penlight that is mounted to the temple of a pair of eyeglasses; and the Taser Cam, a handheld video camera.

Video products are in the early stages of adoption. They are considered an enormous growth opportunity for Taser, which relies on sales of conducted electrical weapons, or CEWs, to law enforcement, military, prison, private security and personal defense markets.

New Products Popular

Taser didn't even launch its Axon Body line until this year's third quarter, and wound up selling nearly 780 units, CEO Patrick Smith said on a conference call with analysts. "By launching this product we are filling a much desired market niche," he said.

Another technology Taser has been promoting is its cloud-based Evidence.com digital evidence management system. This lets customers manage, share, analyze and store video and other evidence.

In addition, Taser has revamped its pricing structure for its products to make them accessible to more customers. The price for Axon Flex has been cut nearly in half, to $499 per camera from $949. Licenses for Evidence.com range from as low as $9.95 a month to $49 a month, depending on the specific services.

One goal of the new pricing model is to accelerate the sales process "by eliminating the perception that our products or services are expensive," Smith said.

Taser has big plans for these products, with the ultimate goal of equipping all law enforcement officers with on-officer video within three years.

The gear certainly fills a need for police departments, notes Dougherty & Co. analyst Gregory McKinley.

"The challenge for product adoption will be the readiness of police departments and officers to adopt new and innovative technology in the field," McKinley said. "Axon Flex and Axon Body will be sold modestly above cost to drive adoption, with the view for profit generation over time accomplished by attaching an Evidence.com license to the device sale."

Law enforcement agencies that ordered Axon and Evidence.com products during the third quarter included the Dallas/Fort Worth International Airport Department of Public Safety and the police departments of Fort Worth; Greensboro, N.C.; Spokane, Wash.; Topeka, Kan.; and Albuquerque, N.M.

Investor Interest

Excitement over the potential of Taser's Axon and Evidence.com products has driven growth in share price. The stock has climbed more than 80% since Aug. 13, which was a day after a key court decision on policing and a day before the company announced several new deployments for its cameras and Evidence.com service.

Taser stock established a six-year high of 18.52 on Oct. 31, and shares currently trade near 16.

The company's rise in the stock market is viewed as partly due to a U.S. federal court decision Aug. 12 that said the New York Police Department's stop-and-frisk policy is unconstitutional.

As part of that decision, Judge Shira Scheindlin ordered the NYPD to enter a one-year pilot program outfitting some of its officers with wearable cameras. The ruling was considered a bonus for Taser because it is the No. 1 player in the market for wearable cameras.

Although the ruling is under appeal, the cameras are becoming more popular with police forces.

In a Dec. 16 note, JPMorgan analyst Paul Coster cited the video business as one of the reasons he upgraded Taser to overweight from neutral.

"The multiple is a premium to our coverage universe that is justified, in our view, by the company's long-term earnings growth potential, particularly the video segment," he said.

Meanwhile, Taser has shown recent promise on the international front. On Dec. 10, the company announced $5.8 million worth of foreign orders for its CEWs and its next generation Smart Weapons.

Most of Taser's foreign orders came from the Middle East and Asia. "The political turbulence in these regions has increased the concern for personal safety," Zacks Equity Research said in a report. "Taser's unique technology will help lower the possibility of injuries and save civilian lives."

The $5.8 million in orders is pretty significant for a company that posted $35.2 million in sales during the third quarter. That figure was up 22% from a year earlier, marking the seventh straight quarter of double-digit revenue growth.

Earnings for the quarter climbed 43% to 10 cents a share, topping views for 8 cents.

Sales in the Taser weapons segment grew 16.8% to $31.6 million, while Evidence.com and video product revenue more than doubled to $3.6 million.

"Taser delivered a strong quarter and has laid out its case for the economic and technology drivers of adoption of its on-officer video product and upgrade cycle for its CEWs," analyst McKinley noted.

Analysts expect fourth-quarter earnings to come in flat at 7 cents a share. Full-year profit is seen rising 19% in 2013 and 6% in 2014.

Taser is the 10th largest firm by market capitalization in IBD's Security/Safety industry group, led in size byADT ( ADT ),Allegion ( ALLE ),Corrections Corp. of America ( CXW ) andGeo Group ( GEO ). The industry group ranks No. 46 of 197 that IBD tracks.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: ADT , ALLE , CXW , GEO , TASR

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