Landauer: Thinking outside of the badge
When many companies start off, they are flanked with business proposals and specialists at the helm. Radiation detection company Landauer, Inc. (NYSE:LDR) was started “with a few borrowed dollars and a prayer.”
Or so the story goes. The company, which leases and sells radiation detection monitors to hospitals, medical offices, laboratories, nuclear power plants, was first started in 1954 by Robert S. Landauer, Jr., after returning from service in World War II. (Landauer took to radiation monitoring in the 1930s as he made the rounds with father, who consulted with radiologists.)
In the beginning, Landauer, Jr. was a jack-of-all-trades within his budding company, marking film, processing badges and writing up reports. Purdue University and General Electric eventually took chances on his product and helped establish his brand and by the '60s, the company reached a milestone in processing rates. The rest, as they say, is history, but one that is still radiating today.
Landauer typically enters into 12-month agreements with its customers and provides them with badges that are to be worn by employees for one to three months. Customers can include hospitals medical offices, laboratories and nuclear power plants. The badges are then returned to Landauer and analyzed so that a report indicating radiation exposure levels can be furnished to the customer. In addition, the company provides services related to analyzing and maintaining records on exposure findings from its monitors, and also offers radon gas detection services.
It’s been a long road since 1954, but today the $541-million market cap company is flourishing in a niche market and buoyant even through the current stock market maelstrom. In the past 52 weeks, Landauer shares have climbed 20%.
The company is coming off a record second-quarter in which its EPS grew by 6.2% on a 9.7% rise in quarterly revenues. It benefited from increased volume as well as better cost management. During the quarter Landauer was also able to close its largest single deal in company history: a $2 million agreement with Health Canada to support Canada’s nationwide emergency response strategy.
Stephen O’Neill, an analyst for Hilliard Lions, said the contract win could open the door to further business in Canada. “Canada currently has 18 nuclear reactor units in operation
providing 16% of its power needs, with units under construction and more planned,” he wrote in an April 30 research report. “Establishing a relationship in Canada could help obtain business with those operators.”
The Health Canada contract will also go a long way in terms of affording Landauer the opportunity to grow its international operations. According to O’Neill, domestic operations accounted for approximately three quarters of the company’s second-quarter revenue. The momentum being experienced by Landauer’s international segment could soon prove to even out this breakdown as foreign revenue has been growing at a rate in excess of 20%.
Analysts are expecting the company to finish 2008 with EPS of $2.47 on $89.1 million in revenues. These metrics would represent 7.9% and 6.5% respective improvements over the company’s 2007 results. Analysts are then looking for EPS to rise by another 7.7% in 2009 on a 4.4% rise in sales versus expected 2008 results.
On April 30, O’Neill had a “neutral” rating on shares of Landauer and indicated that the stock was reasonably valued at a price just under $53. “Despite modest growth prospects, Landauer has typically traded at a premium valuation,” he wrote. “We feel this is due to its high margins, reliable revenue and attractive yield.”
The aforementioned dividend yield, as well as institutional ownership of the stock, are two important features of Landauer shares. The company presently maintains a healthy dividend yield of 3.4%, and has had the ability to increase the rate of its quarterly dividend on an annual basis dating back to 2002.
One specific risk for potential investors in Landauer is the fact that the company relies upon a single supplier, Matsushita Electric Industrial (NYSE:MC), for the parts and assembly of one of Landauer’s key product lines. Any disruption in this supply line would adversely impact the company’s future operations.
That being said, the company’s track record of more than 50 years in the business is a strong indicator of its ability to remain flexible and successfully adapt to changing business environments. And although small-cap stocks are typically sought after by growth investors, Landauer’s dividend yield will help the stock appeal to both growth and income investors alike.
