LaserCard: Homeland ID

02/04/2005 12:00 am EST

Focus:

Paul Tracy

Editor, The StreetAuthority Market Advisor

"Homeland security remains a top priority, and it's almost a certainty that government security spending will continue to grow for at least the next three to five years, even if the economy turns sour," says Paul Tracy. Here, he look at an ID  company poised to benefit.

"LaserCard (LCRD NASDAQ) supplies advanced identification cards to both the US and foreign governments. These cards contain optical data storage chips and are able to store biometric identification information such as fingerprints and facial features. Its products can also be used to carry medical records, additional digital information on cargo manifests, or supplemental information on bankcards. Its technology is already in use on US-issued green cards, on Canadian permanent resident permits and on national ID cards in both Italy and Saudi Arabia. In total, LCRD already sells its products in the U.S. and throughout 16 foreign countries.

"Although plenty of other companies make cards with magnetic stripes or imbedded chips, LCRD has virtually no competition in the optical card market. LaserCard's key advantage is that its cards are capable of holding a great deal (over 4 megabytes) of data, which is far more than traditional magnetic stripe ID cards. That allows governments to store more information about the bearer on these cards, including more biometric information and a detailed record of where the card has been scanned in the past. Perhaps even more importantly, the company is able to put several layers of computer security on its cards. These security measures make it very difficult to counterfeit the cards and to illegally read data.

" The most obvious growth driver for LCRD is increased spending on security. A variety of governments around the world already issue national ID cards, and many other nations are now considering such cards in light of new highly publicized security threats. Some foreign nations such as Italy and Saudi Arabia have already widely employed LCRD's systems on ID cards. But there is still plenty of room for growth here. LCRD is projected to see long-term growth of over +25% per year. While the company will likely lose money in this fiscal year (ended March 2005), analysts expect the firm to reach profitability in 2006. Within the next few years the company should be earning upwards of $0.50 per share. Applying a multiple of 30 times those earnings, a slight premium to the firm's long-term growth rate, we could easily see the stock trading upwards of $15 per share, about 50% higher than current levels."

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