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Flir Systems Has Something That Microsoft Needs

Stocks in this article: MSFT AAPL AMZN NFLX FLIR

NEW YORK ( TheStreet) -- Microsoft (MSFT) is one of the most widely followed publicly traded companies, but it going to have to think outside its comfort zone if it wants to stoke enough growth to boost its stock price.

Even though it has a new CEO and a veteran board of directors, I feel strongly that Microsoft will stay stuck in a rather narrow trading range until it figures out how to do what companies like (AMZN) and Netflix (NFLX) excel at.

You might guess what those companies do well at, but in case you don't, it is what I call "lucrative innovations." CEOs such as Jeff Bezos and Reed Hastings are regularly pushing the envelope to explore and go where their companies have never gone before. In short, these companies think big.

An example of how Microsoft can accomplish this would be to take some of its many billions of dollars of free cash and invest in a well-established company that's about 4 hours south on Interstate 5: Flir Systems (FLIR). Founded in 1978, this Wilsonville, Ore. company has a vast client base that includes governments around the world as well as many commercial customers.

Flir designs and makes thermal-imaging systems including night-vision scopes and cameras, as well as surveillance and detection systems. If you're thinking of the defense and security sectors, you're spot on!

To learn the rest of the Flir Systems story, I'd encourage you to visit its Web site. You'll come to understand why this company can pull in more than $1.5 billion a year in revenue, and why analysts expect it to log about $350 million in sales this quarter. On average, the 11 analysts who follow FLIR expect 2014 earnings per share to rise 20% from 2013, according to Yahoo! Finance.

Yet after the company released its fourth-quarter 2013 and full-year financial numbers on Feb.7th, Zacks Investment Research downgraded FLIR to a strong sell on Feb. 11t.

"FLIR Systems witnessed sharp downward estimate revisions after reporting disappointing fourth-quarter 2013 results. Further, this thermal image provider reported negative earnings surprises in 3 of the last 4 quarters, with an average of -3.9%" Zacks wrote.

Let's look at a 5-year chart to see where Flir's stock has been and give some understanding as to what has affected it.

FLIR Chart

data by YCharts

Return on Invested Capital has been going the wrong direction (orange line) while its quarterly revenue-per-share (red line) has been stair-stepping higher. On Feb. 7th Flir reported fourth-quarter 2013 earnings (excluding one-time items) at 35 cents, down 32.7% from 52 cents in the year-ago quarter. Quarterly EPS also missed the Zacks Consensus Estimate by 10.3% or 4 cents.

"The quarterly results were primarily impacted by weakness in order flow from U.S. government-funded customers. However, the company's revenues picked up 3.6% during the quarter driven by its Commercial Systems segment but were offset by decline in the Government System division" wrote Zacks.

The company is trying to restructure and improve communications. In other words, it needs to be taken over by a company with lots of money, technological skills and the experience to let Flir Systems work out its snags.

This also means that Flir would be a reasonably-priced target for a company such as Microsoft. With a market cap of slightly more than $4.6 billion and a forward (one-year) price-to-earnings ratio of about 18, Flir would be an affordable purchase for Microsoft. Flir could be integrated as a bottom-line revenue generator for Microsoft that could be quickly accretive to the buyer's earnings.

With a market cap of more than $312 billion and total cash at the end of 2013 of more than $83 billion, Microsoft has no excuse not to branch out in imaginative new directions to improve its image and stock price potential.

Flir Systems needs some fixing and financial guidance to reach its maximum money-making capacity. Microsoft could offer both as well as other synergies that would catapult "Mr. Softy" into the big league of publicly traded growth companies. Sounds like a plan to me, and if your a Microsoft investor you're likely to agree.

At the time of publication the author held shares of Microsoft.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial writer and editor, he specializes in unique investment strategies, growth with income stocks, overlooked investment themes, tax-advantaged themes, risk management, technologies to capture gains and reduce losses, real estate related opportunities,effective wealth preservation techniques, and the use of ETFs for diversification and asset allocation. He also follows and frequently writes about technology, health sciences, energy and resource companies. Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.

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