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FLIR Systems Buys Point Grey Research for $253 Million


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FLIR Systems Inc. (FLIR - Analyst Report) has inked a definitive asset purchase agreement to buy Point Grey Research, Inc., for about $253 million in cash. The deal is expected to close in fourth-quarter 2016.

Point Grey develops machine vision cameras used in industrial automation systems, medical diagnostic equipment, intelligent traffic systems, people counting systems, military and defense products, and advanced mapping systems. This is a burgeoning field as technology companies pursue self-driving cars, advanced manufacturing and comparable end uses.

The addition of Point Grey’s capabilities will add to FLIR Systems’ OEM cores and components business, and expand its range of visible spectrum machine vision cameras and solutions.

In fact, Point Grey’s proven capabilities in industrial vision systems offer a strong platform for the integration of FLIR Systems’ leading thermal technology. The acquisition could help leverage a rich, largely untapped layer of information generated through thermal imaging technology.

Point Grey, on the other hand, will gain from FLIR Systems’ unique abilities to measure temperature remotely, see-through factory obscurants, and accurately detect and characterize human activity in retail settings.

The company expects the deal to be dilutive to its 2016 earnings to the extent of 1 penny, and be accretive afterward. The business will be integrated into FLIR Systems' Integrated Imaging Solutions business, operating within the OEM and Emerging segment.

Till now, FLIR Systems has been focused on thermal imaging and infrared products. Point Grey, with its visible camera technology, will help the company diversify beyond its core market as a defense contractor providing surveillance systems to the military.

FLIR SYSTEMS Price and Consensus

This is especially relevant in the face of steadily declining defense spending in the U.S., which has affected FLIR Systems’ profitability. Consequently, the company’s efforts to expand its operations into consumer technology and similar markets bode well for the company’s future growth.

Earlier in the year, FLIR Systems purchased Armasight, Inc., a dominant developer of military optics products, precision sporting and hunting, for roughly $41 million. Armasight’s capabilities have built up on FLIR Systems’ scopes and sights business and enabled FLIR Systems to leverage on additional market expertise. This expands its footprint in the growing hunting and military scopes markets.

FLIR Systems also acquired video surveillance company – DVTEL – for $92 million at the end of 2015, adding to its capabilities.

FLIR Systems boasts a strong backlog, productive R&D investments and cost-reduction activities. These are likely to translate into profitable growth. Further, we believe that its accretive acquisitions will expand its operational scale and boost the company’s profitability.

However, in recent times, FLIR Systems’ profitability has been restricted due to currency headwinds, an unfavorable product mix and higher manufacturing costs in some segments, despite its strong top-line growth.

FLIR Systems presently carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked stocks in the broader sector include CAE Inc. (CAE - Snapshot Report) , Leidos Holdings, Inc. (LDOS - Snapshot Report) and General Dynamics Corporation (GD - Analyst Report) . All three stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Defense equipment provider CAE has a robust earnings beat history, having surpassed estimates thrice over the four trailing quarters, with an average positive surprise of 10.6%.

Leidos is a science and technology solutions company with a decent earnings history. The company has beaten estimates thrice over the trailing four quarters, for an average beat of 7.9%.

Leading defense and aerospace company, General Dynamics has a striking earnings surprise history over the trailing four quarters, having beaten estimates in each of them, for an average of 6.5%.

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