It has been about a month since the last earnings report for OSI Systems (OSIS Quick QuoteOSIS - Free Report) . Shares have lost about 9.7% in that time frame, underperforming the S&P 500.

But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is OSI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important drivers.

OSIS Q3 Earnings Beat on Record Backlog and Strong Bookings

OSI Systems posted third-quarter fiscal 2026 earnings that topped expectations on steady execution in its two largest divisions. Adjusted earnings were $2.60 per share, up 6.6% year over year and 2.8% above the Zacks Consensus Estimate of $2.53.

Revenues were $453 million, up 2% from the year-ago quarter and 0.4% ahead of the consensus mark of $451 million. Backlog ended the quarter at a record $1.9 billion, underscoring demand visibility across the portfolio.

OSIS Lands Major Defense Work and International Awards

Management pointed to strong bookings momentum during the quarter, supported by awards in both Security and Optoelectronics and Manufacturing. A key highlight was a homeland defense Undefinitized Contract Action with a not-to-exceed value of about $235 million tied to an over-the-horizon radar transmit subsystem.

The company also cited several international wins for cargo and vehicle inspection systems and airport screening solutions. While some Middle East activity was delayed by logistics and travel constraints, management framed the impact as timing-related and noted demand could strengthen once conditions stabilize.

OSI Systems Sees Security Growth Beyond Mexico Programs

Security revenues were $319.3 million, as higher service revenues, stronger aviation product sales and increased RF contributions offset a sharp step-down in Mexico contract revenues. Mexico’s Security revenues fell to $11 million from $69 million in the prior-year period, creating the toughest comparison in fiscal 2026.

Excluding the Mexico contracts in both periods, Security revenues increased 25% year over year, reflecting strength across services, aviation and RF-engineered solutions. U.S. order activity was affected by a Department of Homeland Security shutdown that delayed procurement, with management expecting ordering patterns to normalize after the shutdown ended.

OSIS Optoelectronics Momentum Adds Balance to Results

Optoelectronics and Manufacturing revenues were $111.0 million, up 10% year over year and a quarterly record for the division, according to management. The segment’s book-to-bill ratio exceeded 1, supporting visibility as customers diversify supply chains and launch new products.

A notable win included a $40 million award for electronic subassemblies from a medical OEM. Management emphasized its vertically integrated model and broad manufacturing footprint as an advantage across aerospace, defense, medical and industrial end markets.

OSI Systems Works Through Healthcare Timing Headwinds

Healthcare revenues were $40.7 million, and management said the division was hurt by order timing, most notably in the United States. The company noted EMEA posted growth during the quarter and reiterated that Healthcare products generally carry the highest contribution margins within OSI’s portfolio.

Given the lower sales level, the adjusted operating margin in Healthcare was described as negligible, with management expecting a recovery as performance improves. The division remains focused on operational progress and new product development.

OSIS Margins Shift With Mix and Investment Priorities

Consolidated gross margin was 33% in the quarter, slightly below the prior-year level, as a less favorable product mix outweighed benefits from higher service revenues. SG&A declined year over year, while R&D increased as the company invested in innovation.

Security’s adjusted operating margin expanded to 18.3% from 18.1% a year ago, helped by higher-margin service revenues and reduced operating expenses. Optoelectronics and Manufacturing adjusted operating margin dipped to 13.5% from 14.0% on a less favorable mix.

OSI Systems Cash Collection After Quarter-End Supports Liquidity

Operating cash flow was $14.5 million, pressured by limited collections on Mexico receivables. Shortly after quarter-end, the company collected about $74 million related to its largest Mexico receivable, supporting early fourth-quarter cash flow.

OSI ended the quarter with $345.2 million in cash, and management expects substantial inflows in the fourth quarter and into fiscal 2027 as Mexico receivables continue to be collected. Net leverage at quarter end was about 2.2x under its credit agreement.

OSIS Maintains Fiscal 2026 Outlook

The company reiterated fiscal 2026 guidance for revenues of $1.825 billion to $1.867 billion and adjusted earnings of $10.30 to $10.55 per share. Management said near-term bookings and fourth-quarter revenues could be affected by government procurement timing and conflicts in the Middle East.

OSI also noted its adjusted earnings guidance excludes potential impairment, restructuring and other costs, along with certain non-recurring tax items. Management pointed to its diversified end markets and growing service mix as support for execution.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, OSI has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a score of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, OSI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

OSI is part of the Zacks Electronics - Miscellaneous Components industry. Over the past month, TE Connectivity (TEL Quick QuoteTEL - Free Report) , a stock from the same industry, has gained 3.8%. The company reported its results for the quarter ended March 2026 more than a month ago.

TE Connectivity reported revenues of $4.74 billion in the last reported quarter, representing a year-over-year change of +14.5%. EPS of $2.73 for the same period compares with $2.10 a year ago.

TE Connectivity is expected to post earnings of $2.81 per share for the current quarter, representing a year-over-year change of +23.8%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

TE Connectivity has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.