OSI Systems stock is a buy, Roth says

Following a significant new order, Roth MKM analyst Jeff Martin remains bullish on OSI Systems (OSI Systems Stock Quote, Chart, News, Analysts, Financials NASDAQ:OSIS).

On May 30, OSIS reported that it had been awarded a new contract with an unnamed international airport worth $42-million. The contract covers checkpoint and baggage screening,

“We’re pleased to have received this large aviation order and are excited about supplying our long-standing customer with our leading security products, CEO Deepak Chopra said. “These technologies have been designed to meet critical international airport security standards and enhance safety and security.”

The analyst said this is a good sign for the company.

“This morning’s contract award enhances our confidence in a continuation of revenue growth in FY25,” Martin said. “Strong bookings and a sustained $1.8B record backlog while delivering on large orders in FY24 indicate a continuation of strong performance in Security next year. We anticipate confirmation of our FY25 revenue growth assumptions upon issuance of initial FY25 guidance next quarter, which could provide an incremental catalyst for multiple expansion.”

In a research update to clients May 30, Martin maintained his “Buy” rating and price target of $172.00 on OSIS. The analyst thinks the company will post EBITDA of $269.0-million on revenue of $1.52-billion in fiscal 2024. He expects those numbers will improve to EBITDA of $291.0-million on a topline of $1.60-billion in fiscal 2025.

“Our $172 price target is based on an 11.5x multiple to FY25E adjusted EBITDA of $291M,” the analyst wrote. “OSIS currently trades for 10.1x our FY24 adjusted EBITDA estimate and 9.4x our FY25 estimate. Factors that could impede shares of OSIS from achieving our PT include integration of acquisitions; macroeconomic weakness; inability to secure large, government contracts; delay of product replacement cycles; vagaries of government programs; competitive dynamics related to consolidation within the security industry; and volatile hospital spending for the company’s healthcare unit.”