Rae Systems, Inc. (AMEX: RAE, Stock Forum). There is money in radiation – specifically, the detection and monitoring of it, along with all the protective gear. Rae Systems is getting a stranglehold on this up-and-coming market, and we expect some good performance going forward.
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Short-Term Target: 1.20 - 1.45
Long-Term Target: 1.65 - 1.85
Highlights
· Global provider of radiation detection monitors
· $14.77 million in cash
· Q3 revenue up 17%; year-to-date up 13%
· Swung to Q3 profitability
· Clients include: U.S. military, Department of Homeland Security
Outlook - A leader in delivering innovative chemical and radiation detection monitors, RAE Systems, Inc. is a profitable company with improved operations and excellent long-term growth potential. The company recently reported strong third quarter and year-to-date results. In addition, RAE introduced its new wireless radio gas detection product.
Preventing nuclear and radiological material from being smuggled into the United States has become a top national priority in recent years. In 2005, the White House created the Domestic Nuclear Detection Office at Homeland Security to manage the acquisition and deployment of radiation detection equipment at ports of entry.
In the past twenty years or so, there have been significant changes in the strategy and applications for homeland security. Recently there have been significant trends aimed at deterring and stopping terrorists and associated organizations. This is a shift in the normal paradigm of deterrence and surveillance.
With that shift comes the responsibility to monitor international borders for weapons of mass destruction, including radiological weapons. As a result, countries around the world are deploying radiation detection instrumentation to halt the illegal shipment of radioactive material crossing international borders. These efforts include deployments at land, rail, air, and sea ports of entry in the U.S. and in Europe and Asia.
Business Profile - You may not learn who dealt it, but the detection and monitoring instruments of RAE Systems will confirm the presence of gas and detail its chemical composition.
The company's products include atmospheric monitors, photoionization detectors, radiation detectors, gas detection tubes, sampling pumps, security monitoring devices, fixed and mobile digital video recorders, and fixed digital video recorders, which incorporate an array of sensors.
RAE’s products are deployed in oil, gas, and petrochemical plants, as well as in other types of manufacturing facilities for the detection of toxic industrial chemicals, volatile organic compounds, and petrochemicals.
These products also enable the military and first responders, such as firefighters, law enforcement, and other emergency management personnel to detect and provide early warning of weapons of mass destruction and other hazardous materials.
RAE counts the U.S. Departments of Homeland Security, Justice, and State among its customers, along with many sports facilities in the U.S.; including Soldier Field in Chicago and the HSBC Arena in Buffalo.
RAE’s end users also include many of the world’s leading corporations in the airline, automotive, computer, and oil industries. The company’s products are used in civilian and government atmospheric monitoring programs in over 50 countries.
Fundamental Analysis- On November 5, RAE announced its financial results for the third quarter ended September 30, 2008. The company reported third quarter revenue of $28.8 million, a 14% increase over the same prior-year period and a 17% increase over the second quarter.
RAE reported third quarter net income of $554,000, or 1 cent per share, compared with a loss of $2.4 million, or four cents per share for the third quarter of 2007.
Year-to-date RAE posted revenue of $71.4 million, a year-over-year increase of 13%. Net loss for the nine month period was $2.2 million, or four cents per share, compared with a loss of $7.2 million, or 12 cents per share for the same period in 2007.
Robert Chen, CEO, said, “We are focused on delivering energy, infrastructure and environmental safety solutions worldwide, while maintaining cost controls. The company is well positioned in the markets we serve, and we have a strong global brand that has been augmented with a number of new products.”
Recent News- On October 15, RAE introduced MeshGuard a single-sensor, battery-powered toxic gas detector integrated with a wireless mesh radio modem for detecting hazardous levels of hydrogen sulfide or carbon monoxide.
Applications for MeshGuard include: oil and gas drilling operations, oil and gas production, plant maintenance, turnarounds, industrial safety, storage tank farms, shipyards and maritime monitoring.
“This new product adds to our suite of solutions for the energy market, and it gives workers a new safety tool that changes the way gas detection is currently deployed in energy exploration and early production,” said Bobby Sheikhan, Wireless Products Manager.
“We have already seen early deployments of MeshGuard, and the time saved in deploying a wireless gas detection system represents a significant saving in both time and money.”
Conclusion- A leader in delivering innovative chemical and radiation detection monitors, RAE is a profitable company with improved operations and excellent long-term growth potential. The company recently reported strong third quarter and year-to-date results. In addition, RAE introduced its new wireless radio gas detection product.
On November 4, RAE announced that third quarter revenue climbed 17% year-over-year to $28.8 million. RAE also swung to third quarter profitability of $554,000, or 1 cent per share. Year-to-date revenue was up 13% at $71.4 million. The company’s loss for the period improved significantly to $2.2 million, or 12 cents per share.
During the quarter RAE won orders from United Arab Emirates, Qatar, Kuwait, Spain, China, and Australia. The company was selected by Vopak, among the largest independent storage tank service suppliers for crude oil and mineral products in Europe and the Middle East. RAE was also selected by the U.S. Army in Europe to provide base protection operations.
At the same time, it is important to note that during 2008, RAE's internal audit department identified certain payments and gifts made by personnel in the company's China operations that may have violated the Foreign Corrupt Practices Act (FCPA). RAE is cooperating with the Department Of Justice in connection with their reviews of the matter and is seeking to achieve a negotiated resolution of all matters pertaining to the transactions in question.
However, the final outcome of this or any future government investigation cannot be predicted with certainty. Any such matter could have a material affect on the company's business.
Still, RAE continues to have a positive outlook going forward. Company CEO Robert Chen noted, “We believe our technical lead in the wireless sensor domain supports our future growth plans, particularly in the global energy markets.”
The recent slow-down in sales activity in the company’s Asia markets has impacted its fourth quarter outlook; therefore, RAE has revised its full year 2008 revenue guidance to be in the range of $92 million to $94 million.
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