SWOT Analysis: Landauer

Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As a dividend-oriented investor, I want to own a stock for a long time. With a holding period of “forever,” I need to have a well rounded picture of a company. One tool that really helps round things out is a SWOT analysis. This simple tool requires nothing more than making a thoughtful list of a company's Strengths, Weaknesses, Opportunities, and Threats. 

A company's strengths and weaknesses are both internal factors, while its opportunities and threats are both external factors. This is an important distinction that should help drive your thought process. It's not hard to create a SWOT analysis and it's a research step well worth your effort. For me, its a vital part of the process of creating a more in-depth company profile.

I have been researching Landauer (NYSE: LDR), which was recently highlighted as a high dividend paying small cap growth gem in Forbes. Landauer is a global provider of radiation detection devices and services. It uses its niche expertise to provide services in the radiation safety, occupational radiation monitoring, professional medical physics, and radiation exposure measurement and monitoring areas. It breaks its operations into two segments, Radiation Monitoring and Medical Physics. Its a good company with a unique niche in growing industries. As a small company, it has the potential to provide investors with years of company and dividend growth.

To further my research of this potential dividend idea, I built the following SWOT analysis:

Strengths (Internal)

  • Relatively large player in a niche market giving it economies of scale.
  • Material number of relationships in a field with high customer retention rates creates an annuity like income stream.
  • Company's skills and abilities are difficult for competitors to replicate and minimizes new entrants.

Weaknesses (Internal)

  • Reliance on a single company facility for the manufacturing of a key product input.
  • Multiple components available only from one supplier.
  • Small size on an absolute basis could hinder growth and complicate acquisitions.

Opportunities (External)

  • Fragmented industry ripe for consolidation by Landauer (and others).
  • Increasing use of radiation in multiple fields, particularly for medical purposes.
  • Aging of the baby boomer generation worldwide likely to augment absolute demand for radiation services and spur new uses of radiation as technology advances.

Threats (External)

  • Regulatory changes, particularly in the domestic health care industry.
  • Disruption of foreign markets in which the company operates, including natural disasters and political unrest.
  • Technological advances that could reduce the need for radiation services.
  • Consolidation in customer industries, particularly in the domestic Health care industry, could pressure pricing.
  • Competitors owned by larger companies, such as the Northern Digital division of Roper Industries (NYSE: ROP), could compete aggressively, suffering short-term losses to take market share.

Although this list covers a lot ground, there are some risks that are bigger than others. My next step is to dig a bit deeper into “three risks” that I think will have the biggest impact on the company's near-term and long-term prospects. I'll post that article in a few days.

One of the things that I find most interesting, however, is the way in which Landauer straddles so many industries. For example, investors looking to gain exposure to the potential growth in the nuclear industry could purchase shares in uranium producer Cameco (NYSE: CCJ). Such direct exposure to a nuclear play, however, would risk the ire of environmentalists who believe nuclear power is an abomination, a fact that can sometimes play havoc with share prices. Moreover, uranium is a commodity, so pricing can and does change rapidly. Similar problems arise from investing in utilities with a nuclear presence. Few would ever see Landauer in the same light, even though it will benefit from increased use of nuclear power, too. Moreover, Landauer doesn't suffer from the commodity issue.

On the flip side, Landauer is entering the medical industry with an expertise that competitors would have a hard time replicating. It isn't far fetched to imagine an industry giant like Johnson & Johnson (NYSE: JNJ) stepping in to buy Landauer. Indeed, Johnson & Johnson is more of a collection of companies purchased over time than a single entity. In the last twenty years, it has made several notable acquisitions, including pushing itself further into the pharmaceutical and medical device spaces. Landauer would be a quick and easy way to gain important customer relationships in an industry where contract retention rates are high.

Let me know if you think I've missed anything by commenting below.

Yours,

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ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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