FLIR Systems, Inc: Way Too Cheap, a Double Just to Start

FLIR Systems Will Boom from the Surge in Military Spending

The U.S. defense budget is set at over $700.0 million for 2019 and based on what we are seeing in the geopolitical space, the spending could rise from here.

There will be plenty of funds to go around to the hundreds of companies that provide products and services to the military.

In the mid-cap segment, one of my top defense stocks is FLIR Systems, Inc. (NASDAQ:FLIR), a provider of advanced sensing technologies geared for military and commercial applications that demand extreme precision.

FLIR Systems develops thermal imaging systems, visible-light imaging systems, threat detection systems, locator systems, and diagnostic and measurement systems.

But FLIR stock has been under pressure after reporting a small revenue contacting in 2018. The positive is that FLIR grew its profits and free cash flow (FCF) and is estimated to ramp up revenues and profits over the next two years.

In my view, it’s an opportune time to accumulate shares of FLIR stock, given the stock is down 23% over the past year and up a mere 5.14% this year.

Chart courtesy of StockCharts.com

A closer examination of the above stock chart shows FLIR stock is holding at above $40.00 and eyeing upside targets at $52.60, $54.74, and the high of $63.88.

The Bull Case for FLIR Stock

FLIR Systems, Inc. increased its revenues from 2015 to 2017, prior to a small decline of 1.37% to $1.78 billion in 2018.

(Source: “FLIR Systems,” MarketWatch, last accessed August 16, 2019.)

A positive sign is that FLIR is estimated to reverse things and record an 8.8% increase in revenues to $1.93 billion in 2019, followed by a 5.9% increase to $2.05 billion in 2020. (Source: “FLIR Systems, Inc. (FLIR),” Yahoo! Finance, last accessed August 16, 2019.)

FLIR also generates positive earnings before interest taxes depreciation, and amortization (EBITDA), with growth in three of the last four years.

(Source: MarketWatch, op cit.)

The company is consistently profitable on a generally accepted accounting principles (GAAP) and adjusted basis, including a surge of 162.35% to a five-year GAAP high of $2.01 per diluted share in 2018.

(Source: Ibid.)

On an adjusted basis, FLIR made $2.22 per diluted share in 2018 and is expected to increase this to $2.34 per diluted share this year and $2.61 per diluted share in 2020. (Source: Yahoo! Finance, op. cit.)

FLIR is also producing positive FCF with growth in three of the past four years, including a five-year high of $343.38 million in 2018.

(Source: MarketWatch, op. cit.)

Analyst Take

FLIR stock looks to have a decent risk-to-reward ratio at the current price. The near-term could be a bit choppy, given the broader market risk, but the long-term looks positive.

FLIR is expected to grow its earnings at 21.9% over the next five years, versus 11.23% during the last five years.

The price-to-earnings-growth (PEG) ratio of 0.9 implies FLIR Systems, Inc. is trading below its five-year growth rate for earnings. Even if FLIR stock rallied back to its high at above $64.00, the PEG ratio would rise to a relatively attractive 1.25.