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FLIR Systems (FLIR) Braves Headwinds on Robust Growth Drivers

Designer and manufacturer of thermal imaging systems, FLIR Systems, Inc.FLIR managed to impress investors with second-quarter 2017 results, wherein its earnings beat estimates by 2.4%. Buoyed by positive industry trends and solid operational execution, the company expects to continue its earnings momentum on the back of complementary acquisitions and steady market traction of its recently launched products.

We believe, a phenomenal performance by the company's OEM & Emerging Markets segment as well as its Surveillance and Instruments segments bode well for growth for rest of the fiscal year. Moreover, the company enjoys a robust foothold in an expanding electronics market and has several growth drivers working in its favor.Read on to find out the key factors which make the company an attractive proposition for investors right now.

Factors at Play

FLIR Systems' core strength in providing reliable and effective imaging along with threat-detection technologies has been bolstering growth momentum. Over the past couple of quarters, the company's "Commercially-Developed, Military Qualified" ("CDMQ") model has been quite popular in government and military markets, which has enabled it to combat softness in cyclical spending associated with government markets. The company is likely bolster the prospects of its government business further using the model, consequently adding to its strength.

FLIR Systems' diverse portfolio has been a consistent growth driver, helping it mitigate weaknesses associated with any particular market. Over the past few years, the company's solid execution and restructuring efforts have enabled it to streamline business operations and optimize growth. Key metrics like revenues, operating income, operating margin and adjusted earnings per share have considerably benefited from such actions. We expect this trend to continue in the coming quarters as well.

Moreover, FLIR Systems' strong commitment towards introduction of innovative products to expand customer base and enhance foothold in new markets is expected to boost the top line significantly. Since the launch of Lepton technology, the company has seen a compound annual growth rate of 58% in total unit volumes. Going forward, we expect steady market traction of its newly launched products to help the company drive revenue growth in the respective segments. In addition, FLIR Systems' keen eye for strategic acquisitions is expected to be conducive to inorganic growth. Its previously completed acquisitions including Armasight, DVTEL and Dynamics has strengthened presence in recreational, military weapon sights and scopes markets as well as full-spectrum end-to-end security system.

Headwinds

However, FLIR System's financials have been hurting from waning consumer spending and capital investments over the past few quarters. Strong competition from various big and small sector players including the likes of Raytheon Company RTN , Spirit Aerosystems Holdings, Inc. SPR and Huntington Ingalls Industries, Inc. HII remain a threat to FLIR System's profitability. Sluggish economic growth in many of its key markets is also expected to add to its challenges.

Further, the company's primary markets remain quite volatile. Multiple factors like timing, number and size of orders, variations in the volume, and shipments of orders pose significant risks for the company and are beyond its control. Further, the company's operating margins are exposed to multiple seasonal fluctuations including contracting by the U. S. government and certain foreign governments, volatility of funding by customers and tendency of commercial enterprises to fully utilize annual capital budgets prior to expiration.

Considering growth drivers and the risks that the company faces, we believe its focus on business streamlining along with positive trends in certain business areas offer FLIR System modest growth opportunities.

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


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

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