Homeland Security Stocks Gain Strength

Fundamentals positive regardless of election outcome, seeing either candidate as strong in security


NEW YORK -- Homeland security stocks were mostly higher Tuesday on the belief that sector fundamentals will remain positive whatever the outcome of the presidential election.

The sector shrugged off a more than 8 percent tumble in security systems maker Compudyne, which reported late Monday a wider-than-expected third-quarter loss.

"No matter which party controls the White House, we see the federal government focusing concentration on further securing aviation, securing ports, borders and mass transit, protecting infrastructure and strengthening identification and tracking of individuals," said Morgan Keegan analyst Brian Ruttenbur.

Among Ruttenbur's highest, or "outperform" rated stocks, American Science and Engineering ASEI tacked on 3.6 percent to $38.45, Lasercard LCRD was unchanged at $8.99, OSI Systems OSIS rallied 2.8 percent to $18.62, First Advantage FADV gained 1.5 percent to $17.05 and Verint Systems VRNT advanced 0.3 percent to $39.00.

Among biometric technology companies, or those that provide individual identification and authentication systems and services, Identix IDNX shot up 8.8 percent to $7.91.

Lehman Brothers analyst Jeffrey Kessler upgraded the industry leader's stock to "outperform" from "equal weight" on the belief that the biometrics industry "may finally be ready for 'prime time' in 2005."

"U.S. government-awards flow on biometrics over the next 24 months will convince investors that biometrics is a growth business," Kessler said. "Biometrics is a $1 billion industry and is expected to grow to a multi-billion dollar industry in 3 to 5 years."

Also in the biometrics business, Viisage Technology VISG ran up 2.1 percent to $7.43 and Cogent Inc. COGT added 1.3 percent to $19.32.

Meanwhile, Compudyne Corp. CDCY dropped 8.3 percent to $6.52, and hit a 20-month low of $6.13 in intraday trading.

The company reported late Monday a third-quarter loss of $1.9 million, or 23 cents a share, compared with earnings of $982,000, or 12 cents a share a year ago, and much wider than the average analysts' estimate compiled by Thomson First Call of a loss of 5 cents a share.

Friedman Billings Ramsey reiterated its "underperform" rating as the company's attack-protection division was unlikely to turn a profit soon and as quality problems continue to prompt expensive repairs.

Among other more active security stocks, Taser International TASR rose 1.4 percent to $42.11, RAE Systems RAE was moving up 2.1 percent to $7.25 and Armor Holdings AH stepped up 0.6 percent to $37.02.

"Our overall outlook on the homeland security sector is positive," Ruttenbur said. "We believe the federal funding for homeland security initiatives will continue at a strong level, and we see more programs implemented."