Despite economic climate, forecast for security OK

While growing, industry could still suffer from economic downturn


No doubt about it, the innocence is gone. Since 9/11, airlines have tightened safeguards, barricades have gone up around government buildings and local agencies have taken on a slew of new security responsibilities.

"Americans have become more security conscious as our society has gotten more dangerous over time," said Edward Cunningham, head of investor relations for Brink's, the iconic armored- truck company.

As free societies try to strike a balance between protecting the public and personal privacy, many see private security firms as a way to fill the gaps and augment public services.

That heightened sense of danger has helped fuel growth among stocks in IBD's security services group. As of Friday, the sector ranked No. 21 among IBD's 197 industry groups, up from 101 six months ago.

1. Business

The security and safety sector encompasses a broad range of companies that make everything from alarms and gates to sensors and cameras.

Tyco International's ADT unit makes home-invasion alarms that protect more than 5 million households, making it the largest home-security firm.

Other firms manage private prisons and jails on behalf of government agencies. Corrections Corp. of America, Geo Group and Cornell Companies are the biggest firms in the group.

Public opinion about private prisons has changed since Damon Hininger got his start in 1992 as a guard for Corrections Corp. in Kansas. Three months ago, he was named the firm's president and chief operating officer.

Acceptance of private incarceration has "grown a lot" since 1992, Hininger says.

"I clearly remember folks back then worrying if our private facility would be accepted by the community," he said. "Now we're very well accepted and seen as a viable business solution."

After 25 years in business, CCA has grown to 65 facilities, ranging from 200 inmate beds to 3,000, in 21 states.

Other firms sell screening systems to protect against theft.

L-1 Identity Systems authenticates identities for clients. ID Systems tracks assets wirelessly. Checkpoint Systems provides security cameras to track products for retailers.

Many specialist firms address issues such as fire safety, ambulance services, or the detection of explosives and toxic chemicals. American Science & Engineering checks for weapons and drugs in cargo shipments and baggage.

Taser makes stun guns. LoJack sells systems to track stolen cars. Both companies have had strong growth in recent years, but that has begun to slow.

** Name Of The Game: Help customers feel safer. Businesses hire security firms to minimize risks and liabilities. Homeowners seek to protect their families and possessions.

2. Market

The security industry comprises tens of thousands of businesses beyond public law enforcement. More than 300 companies in the U.S. sell electronic security products. The security business units at nine giant conglomerates claim nearly half of this submarket. They are General Electric, United Technologies, Honeywell International, Siemens, Tyco, L-3 Communications, Diebold, Stanley Works and France-based Schneider Electric.

U.S. sales of electronic security systems totaled $9.7 billion last year, a 36% increase over the year before, according to the Security Industry Association. Supporting sectors, including systems integrators, added another $4.7 billion in 2007. SIA officials expect a "much lower" growth rate this year.

Electronic security sales are forecast to grow 7.8% per year, according to the Freedonia Group, a market research firm.

Analysts expect above-average growth for industrial sites, office buildings, lodging and the services sector.

Outside of the consumer market, governments and other institutions were the biggest buyers of electronic security last year. Industrial sales are expected to grow faster than other segments through 2012.

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