FLIR Systems: Avoid This Stock For Now
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As with a many other defense contractors, FLIR Systems (NASDAQ: FLIR) has struggled over the past year as the pressure on the federal government’s budget has continued. This isn’t one of those stocks that will benefit with an economy in an expansionary period so it may be better to stay away even though some of the valuation metrics may look very attractive.
FLIR Systems' trailing 5 year valuation metrics suggest that the stock is undervalued as all three of the metrics are in the lower end of their respective 5 year ranges. FLIR Systems' current P/B ratio is 2.62 and it has traded in a range of 2.6 to 7.3 over the past 5 years. FLIR Systems' current P/S ratio is 2.58 and it has traded in a range of 2.6 to 6.0 over the past 5 years. FLIR Systems' current P/E ratio is 19.56 and it has traded in a range of 14.7 to 38.6 over the past 5 years.
The forward valuation metric is completely on the opposite side on the valuation scale. FLIR Systems is currently trading at about $26 a share with analysts expecting EPS of $1.66 next year, an earnings increase of 23% y/y, for a forward P/E ratio of 15.6. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Lockheed Martin (NYSE: LMT) is currently trading at about $83 a share with analysts expecting EPS of $8.43 next year, an earnings increase of 7% y/y, for a forward P/E ratio of 9.9. L-3 Communications (NYSE: LLL) is currently trading at about $70 a share with analysts expecting EPS of $8.5 next year, an earnings increase of 0% y/y, for a forward P/E ratio of 8.2. Rockwell Collins (NYSE: COL) is currently trading at about $58 a share with analysts expecting EPS of $5.03 next year, an earnings increase of 12% y/y, for a forward P/E ratio of 11.6. The mean forward P/E of FLIR System's competitors is 9.9 which suggests that FLIR Systems is overvalued relative to its publically traded competitors.
The last two valuation metrics suggest that the stock is fairly valued. The consensus price target for the analysts who follow FLIR Systems is $30. That is upside of 15% from today's stock price of $25.92 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Note, the analyst price target may not be a good metric for the company. FLIR Systems has beat EPS estimates 1 times in the past 4 quarters. The company's EPS figures have come in between -16 cents and 4 cents from consensus estimates or about -47.1% to 11.1% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Onto the last metric, according to the cash flow metric provided by Dividend Kings, FLIR Systems is worth $25 a share versus its current stock price of $25.92 a share. This suggests that the stock is fairly valued.
The top two funds that own FLIR Systems are American Funds Growth Fund of Amer A, which owns 7.5 million shares or 4.81% of the shares outstanding, and American Funds Fundamental Investors A, which owns 6.5 million shares or 4.13% of the shares outstanding. The top two institutions that own FLIR Systems are Capital World Investors, which owns 19.6 million shares or 12.55% of the shares outstanding, and Baillie Gifford & Co Limited., which owns 17.8 million shares or 11.4% of the shares outstanding.
Looking at the price action, FLIR Systems is down -17% over the past year, underperforming the S&P 500, which is up 3.7%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $25.69 and above its 200 day moving average, which sits at $25.83.
The Motley Fool has no positions in the stocks mentioned above. DividendKings has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.