FLIR: stimulus makes company an even more attractive investment

choose to adopt IR audits as the sole energy audit used in their program. Konrad thinks that this is likely, because Xcel Energy (XEL) initially proposed the use of IR audits in their most recent DSM Plan last fall. Although, due to the efforts of the Energy Efficiency Business Coalition (EEBC), for which Konrad was consulting at the time, the final plan used the considerably more robust HERS audits. “If EEBC had not intervened, the plan almost certainly would have been approved with infrared audits as the sole requirement,” Konrad writes — which is why he expects that result in some of the many other national programs starting as the result of the stimulus package. Even in cases in which IR are not the sole requirement, properly used IR cameras are very useful tools in the energy auditor’s kit, increasing both the speed and accuracy in detecting problems, so these cameras are likely to have some role in all such programs.

FLIR’s equipment is also used in maintenance and diagnostics of a large range of commercial equipment. Much like rail maintenance stock Portec (PRPX), while manufactures are delaying new investment, such delays may increase the demand for FLIR’s imaging equipment to help assure that older equipment continues to function efficiently. Konrad notes that, for instance, their GasFindIR range of cameras is designed to detect leaks of organic gasses, such as methane. While stopping leaks is valuable in its own right, the potency of methane as a greenhouse gas means that a greenhouse gas cap and trade legislation will likely provide additional incentives to detect and fix gas leaks.

Growth story
FLIR Systems is a growth story based on the rapidly decreasing price of thermal imaging systems, which leads to a rapidly growing market quickly expanding to new applications. So far, Konrad notes, the financial crisis has done little to reduce sales growth, and margins remain extremely robust, with a net operating margin of 26 percent and a return on equity of 28 percent, both of which have been increasing even with decreasing minor use of financial leverage.

While the stock price was plunging along with the market, revenue continued to grow at a robust 38 percent from FY 2007 to FY 2008, and the strength continued in the final quarter of 2008. Management expects revenue to continue to grow at a more subdued 11-16 percent in 2009, without assuming any improvements in global