A lot is going to change in the post-lockdown world when workers trade in their sweatpants for suits. One of the things people will have to get used to is ubiquitous temperature scans. Fortunately, they will be less intrusive than people might imagine, thanks to technology from companies like FLIR Systems.
That’s good news for workers and travelers. It can be good news for FLIR Systems (ticker: FLIR) shareholders, too.
FLIR is officially classified as a maker of industrial electronics. FLIR is short for forward-looking infrared. Infrared light is the long-wavelength light just beyond the eye’s capability to perceive. So the name gives investors an important clue—the company is really good at helping people see what is hard to see.
The company’s technologies include night vision goggles and thermal scanners. A FLIR thermal scan looks a lot like the technology the alien used to hunt down Arnold Schwarzenegger in the 1987 sci-fi action movie Predator.
FLIR’s sales break down about 40%, 40% and 20% to the government, industrial, and consumer end markets, respectively. That breakdown, like the industry classification, is only a start.
“About 59% of our sales come from thermal imaging technologies,” Chris Bainter, FLIR global business development director, tells Barron’s. FLIR makes a lot of thermal imagers, and the business is booming since the outbreak of Covid-19.
“We’ve always done applications to measure elevated skin temperature,” adds Bainter. The company sold scanners in connection with SARS and H1N1 outbreaks in the past. “What’s different now is the amount of demand globally across every industry.”
Bainter says FLIR is talking with hospitals and schools, among others. “One auto manufacturer just purchased 377 [temperature-scanning] cameras for 72 sites,” adds Bainter.
Such activity is showing up in the financials. The company launched a new, related thermal scanner, just before the pandemic hit. CEO James Cannon said on the company’s first-quarter earnings call in May that bookings came in at about $100 million. It’s a strong start, considering the company sold about $1.9 billion of goods and services in total over the past 12 months.
Camera systems can range from $400 for a camera which plugs into an iPhone to $1 million for military-grade solutions. The models for industrial-scale temperature scanning cost about $5,000 to $10,000 a piece.
The good news for workers is the scans don’t have to be all that intrusive. “One of [our] advantages is getting accuracy beyond 6 feet,” adds Bainter. Cameras are accurate up to two to three meters away from the subject. “We are working at building A.I. and machine learning into our software so accuracy improves as people move around.”
The best place to get a temperature off a thermal scan, apparently, is a person’s tear duct.
FLIR produces its own software, and that vertical integration makes it unique, according to Bainter. Other companies make components that compete with FLIR, but few do everything. FLIR sells into the thermal scanning value chain, too. About 25% of the bookings in the first quarter are for “camera cores” that will be integrated into scanners by other companies.
Wall Street isn’t totally sold on the stock, mostly because shares rallied almost 90% off the March lows. SunTrust analyst Michael Ciarmoli noted the company produced better-than-expected results in May, but questioned if the stock’s price momentum could be maintained. He worries that even though the thermal scanning business is strong, the overall industrial economy is weak.
In fact, Wall Street appears lukewarm on thermal scanners, too. Only about 44% of analysts covering FLIR stock rate shares the equivalent of Buy. The average buy rating-ratio for stocks in the Dow Jones Industrial Average is about 55%.
But even though shares are up since March, they remain down about 15% year to date, similar to the drops of the Dow and S&P 500. Shares trade for about 19 times estimated 2021 earnings, very close to the stock’s recent trading history.
That isn’t a big price to pay with a new, significant business seeing accelerating growth.
Write to Al Root at allen.root@dowjones.com
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