Heightened Airport Security Is Lifting Many Companies

The foiled terrorist attempt to blow up a Northwest Airlines Detroit-bound jet on Christmas Day quickly led to new travel restrictions and heightened security measures. While airline stock prices immediately dropped on the news, shares of companies that make airport security devices such as OSI Systems (OSIS) and ICx Technologies (ICXT) enjoyed a rally on Monday and Tuesday.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%Indeed, calls from security experts for full-body scans were soon heard, stirring the old debate about the proper balance between security measures and privacy concerns. Right now, these scans are voluntary, but some analysts are betting on the stricter measures. That's not such a risky wager, considering that the Federal Aviation Administration notes that while metal detectors wouldn't have found the explosive, more sophisticated devices such as low-level X-rays and so-called millimeter-wave technology would have, affirming the companies' own claims.

Bloomberg reports that the Transportation Security Administration, which runs airport security checkpoints, intends to buy 300 advanced imagers, such as OSI's Rapiscan machines, next year. Already, OSI has 150 Rapiscan orders. An analyst at Stifel Nicolaus estimates the U.S. market for these devices could be over $200 million and the global market more than $400 million, according to Dow Jones Newswires.

Many companies could benefit from any requirement that airports get more security equipment. While Lockheed Martin (LMT), Northrop Grumman (NOC), Raytheon (RTN) and General Dynamics (GD) also operate in the market, passenger-screening devices make up a small fraction of their revenues, according to analysts, and will more orders won't have a great impact on them. But several smaller companies are worth watching:

OSI Systems, which makes the Rapiscan security and inspection systems, saw its shares climb another 2.8% Tuesday after rising more than 3% on Monday.

ICx Technologies develops integrated systems for homeland security. Its sensors detect and identify chemical, biological, radiological, nuclear and explosive threats. Its shares jumped over 8% on Tuesday after soaring more than twice that much on Monday.

L-3 Communications Holdings (LLL) is a larger company with more diversified products, including "a more sophisticated system that could prevent smuggling of almost anything on the body," Howard Rubel, an analyst at Jefferies & Co., told Bloomberg. There are now 40 of L-3's "millimeter-wave machines" operating at 19 airports.

American Science and Engineering (ASEI) makes X-ray inspection and other detection products for homeland security and other targeted markets. Its shares rose 2.5% on Tuesday following an even bigger jump Monday.

L-1 Identity Solutions (ID) provides agencies with secure credentialing, biometrics and enterprise security products. Its shares also traded nearly 2% higher Tuesday after jumping more than 6% on Monday.

Analogic (ALOG) makes weapon- and threat-detection security systems.

Oversees, Britain's Smiths Group is the world's biggest maker of airport scanners, while France's Safran is the world leader in biometric technologies, such as fingerprint scanners. They're traded in their respective markets and gained 2.7% and 0.8% Tuesday, respectively.
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