FLIR Systems, Inc. (FLIR), Gencorp Inc (GY), CAE, Inc. (USA) (CAE): Defense Contractors You May Have Missed

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A couple of lesser known suppliers to the U.S. defense industry have experienced sharp run ups in their stock prices. An overview will illustrate if the jumps were warranted and if there may be more positive momentum behind the shares. In fact, these upturns were in line with those of some of the major defense contractors such as Northrop Grumman and Lockheed Martin. There may be other value propositions as well.

FLIR Systems, Inc. (NASDAQ:FLIR)

FLIR Systems, Inc.

Given cuts in spending by the U.S. Department of Defense, FLIR Systems, Inc. (NASDAQ:FLIR) was an unlikely candidate to fare well, given that nearly 40% of revenues stem from its Government Systems unit. Indeed, sales from the Surveillance, Detection, and Integrated Systems businesses declined 6% in the March quarter, with profits falling by a steeper percentage.

However, FLIR Systems, Inc. (NASDAQ:FLIR) has transformed into primarily a supplier of commercial-based products, mostly by way of acquisition. For one, several years ago, it bought out Raymarine, a provider of thermal vision and other electronic products for use in the marine market. Notably, too, in December, 2012, FLIR Systems, Inc. (NASDAQ:FLIR) bought a maker of video surveillance systems, as well as Traficon International NV, a producer of video imaging processing hardware and software for traffic analysis applications. The buyouts are supporting revenues, but probably crimping the operating margin a bit, with an overall slightly positive effect on earnings.

Based on solidly higher backlogs in the Thermal Vision and Measurement, along with the Integrated Systems division, sales and earnings are poised to increase double-digit percentages this year.

Gencorp Inc (NYSE:GY)

The approximately $1 billion market cap maker of propulsion systems for major defense contractors has a growing revenue stream. It is, though, up against a setback it has experienced in the past, specifically excess retirement benefit expenses. A low discount rate is limiting the returns on its retirement plan by increasing the required contribution.

As a result, Gencorp Inc (NYSE:GY) fell into the red in February. Costs related to the pending acquisition of Rocketdyne might also be restraining the bottom line. Gencorp Inc (NYSE:GY) completed the purchase of that business several weeks ago for about $550 million. It issued about $460 million in debt to fund the purchase of the former United Technologies unit. It is unclear what impact the new unit will have on results.

Gencorp Inc (NYSE:GY) stock should be considered only by aggressive investors, in light of its volatile earnings. Those that believe it will shore up the benefit expense issue and allow results to get back on track may want to take a chance.

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