Company of the Week - October 12, 2008 - Axsys Technologies

Company of the Week: Axsys Technologies, Inc.
Axsys Technologies, Inc (Ticker: AXYS) makes lenses and systems that help see incoming missiles through dark, cloudy skies, or peer down on troops in distant battlefields. It sells them faster than it can make them.
Sales for the second quarter came in at $60.3M, up 40% from a year ago. The backlog of orders grew to a record $174.1M. Earnings per share of $0.54 was also up 54% from a year ago.
Company’s exposure to the fast-growing infrared market position it for long term success. Infrared imaging is a $5B a year market globally, with about 80% of that being military spending. The Pentagon is increasingly fond of pilotless drones, which can safely and stealthily prowl over battlefields and insurgent bases. It more than doubled use of such drones in 2007, logging more than 500,000 hours in Iraq and Afghanistan.
Axsys is split into two divisions. The Imaging Systems Group makes optical and motion-control components that are sold to other contractors and incorporated into larger systems. Sales there made up 65% of total revenue in the last quarter. Infrared lenses were a high-margin, fast growing product in that group. The Surveillance Systems Group division designs and makes stabilized and non-stabilized camera systems for air, sea and land mounts. Sales grew 94% over the first six months of 2008 compared with a 33% increase for Imaging Systems.
The U.S. government is the top end user, with direct sales accounting for 3.6% of revenue in 2007. But 66.4% of the year’s revenue came from subcontractors that incorporated Axsys’ parts into larger systems and weapons platforms.
The company is ramping up engineering to develop new products and improve existing ones. It’s developing laser range finders and new radar sensors.
Its competitors are Flir Systems (FLIR), L-3 Communications Holdings (LLL) and Raytheon (RTN). All are subject to the same lumpiness inherent in weapons systems contracts. They all face the same uncertainty around future military spending in the next presidential administration. But most military budget analysts think that whoever wins, spending on sensors and vision technologies will continues.
For the entire fiscal year, the company said to expect sales of between $237M and $241M, up from the previous guidance of $224M to $228M. The company expects EPS to come in between $2.09 and $2.15, up from previously expected range of $1.88 to $1.92. Analysts surveyed by Thomson Financial expect $2.13 per share for the year, which is a 61% increase from 2007.