03/03/2006 12:00 am EST
"President Bush recently proposed spending over $10 billion on border protection," notes Charles Norton. The latest featured buy in his Supernova Stocks is American Science & Engineering, a play on border security, cargo inspection, and bomb detection.
"One way that the government is improving border security is by increasing its use of technology at the border. The President has terrorist threats come in all shapes and sizes, and criminals will go to great lengths to smuggle illegal drugs and other contraband into places where it’s not welcome. American Science & Engineering (ASEI NASDASQ) offers X-ray scanning technology that is helping to thwart their efforts.
"The company’s sophisticated X-ray inspection products are used to protect high-risk government personnel and facilities. The Secret Service uses them, for example, to screen visitors entering the White House or boarding Air Force One. Its ParcelSearch Inspection Systems are used to scan parcels, baggage, and mail for potential threats. Its gear is also widely used for the inspection and clearance of cargo, trucks, and cars at seaports, borders, and airports.
"The company’s X-ray systems rely on its patented Z Backscatter technology, which creates highly readable, photo-like images. Low density objects—such as drugs, explosives, or people— reflect X-rays effectively, and so they’re easily identifiable in Z Backscatter images, even in the most complex backgrounds. Its premier product is the Z Backscatter Van, which produces picture-perfect images of the contents of a vehicle or cargo container, highlighting organic materials such as plastic explosives or other anomalies.
"The military is using the Z Backscatter Van in Iraq to detect insurgents attempting to cross the border. Its success in identifying threats in Iraq could easily translate intoincreased use domestically, in defending our own borders. That’s a priority of the President— and could be a big driver for American Science as the company captures its share of the billions of dollars allocated for border security. The renewed focus on port security certainly bodes well for American Science’s CargoSearch family of X-ray scanning systems.
"American Science’s new SmartCheck system is currently being considered by the TSA to screen passengers in US airports by peering beneath their clothing. Its capability is far superior to metal detectors because it’s able to simultaneously detect both metallic and nonmetallic objects, such as guns and knives, plastic explosives, drugs and other hidden threats.
"Around three-quarters of the American Science’s sales are to the US government, or contractors working with the government. But international sales are high priority, and the development of the company’s overseas business will be a big driver. In January, American Science announced a marketing and distribution agreement with Nuctech Company Ltd. that will give it access to the high potential Chinese market. Its X-ray technology will certainly come in handy as Beijing prepares to host the summer Olympics in 2008.
"From small letters and packages to large containers and trucks, when it comes to X-ray scanning technology, American Science has it covered. And the proof is in the company’s stellar fundamentals. Sales were $38.5 million in the December quarter, 64% higher than prior year levels. Earnings have also skyrocketed, with triple-digit growth in recent quarters. On an annual basis, American Science is expected to earn $3.78 per share in 2006, a 189% jump from the $1.31 earned in 2005.
"On the balance sheet, the company is sitting on $41 million in cash with no debt, which equates to over $9 per share when short-term investments are included. Technically, the stock doubled in price, reaching $73 last September. After consolidating for six months, it recently broke out of its base. The stock’s recent gains have been met with above average volume, a clear sign that institutional investors are gobbling up shares."