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Will Teledyne’s share price benefit from FLIR acquisition?

Teledyne’s [TDY] share price has been on the ascendance as it looks to dominate the hi-tech sensor market. In the tech conglomerate’s sights is FLIR Systems [FLIR] — a maker of thermal imaging equipment.

Not only would this expand Teledyne’s defence and military business, it could also open up a lucrative revenue stream related to outdoor activities, given that FLIR makes sights used by hunters and hikers.

So, what should investors know about the acquisition, and what does it mean for Teledyne’s share price?

 

Why should investors care about Teledyne’s share price?

On 22 March, Teledyne announced it has completed all permanent financing for the $8bn acquisition of FLIR Systems.

This brings together two complementary businesses. Teledyne makes thermal sensors for defence and industrial organisations like NASA, along with LIDAR (light detection and ranging) sensors that are used for self-driving cars. Adding FLIR Systems increases its thermal imaging and night vision capabilities for defence and industrial clients, including a $20.6m contract to provide nano-uav systems to the US Army.  By combining forces, Teledyne would add FLIR’s capabilities to its own in order to provide coverage of the infrared imaging ecosystem.

“Across digital imaging and unmanned systems, FLIR will add uniquely complementary technologies, products, customers and applications to Teledyne's proven business model, ” said Teledyne’s executive chairman, Robert Mehrabian, in a statement accompanying fourth-quarter results.

“Across digital imaging and unmanned systems, FLIR will add uniquely complementary technologies, products, customers and applications to Teledyne's proven business model” - Teledyne’s executive chairman, Robert Mehrabian

 

Investors seem to be backing the deal. Teledyne’s share price is up 8.77% over the past month, and circa 14.14% since the start of the year (as of 31 March’s close). Meanwhile, FLIR’s share price is up 4.57% over the past month and 8.1% for the year-to-date.

This caps off a strong few months for Teledyne. In the fourth quarter, Teledyne reported net sales of $809.3m, down 3% from the $834.2m seen in the same quarter of 2019. Despite the drop in net sales, this was a strong set of numbers from Teledyne. GAAP diluted earnings per share came in at $3.48, an increase of 13.7% compared with the same period the previous year, along with a record-breaking GAAP operating margin of 17.8%. For the full year 2021, Teledyne said it expects diluted earnings per share of $11.25 to $11.45.

"We concluded 2020 with the best earnings, operating margin and cash flow in the company's history," said Mehrabian.

 

Is Teledyne now an outdoor living play?

Having added FLIR to the mix, Teledyne also gets its expertise in thermal imaging cameras for outdoor activities, including hunting and hiking. Outdoor living is a growing investment theme and it spent some time at the top of our thematic ETF screener over the past month, gaining 5.74% for the week (as of 31 March).

Taking advantage of this rising theme is CMC’s JK OutdoorLiving share basket, a CFD portfolio put together in collaboration with OptionsHawk founder Joe Kunkle. The top three constituents of the share basket are Lowes [LOW], Wayfair [W] and Tractor Supply Co [TSCO], which have all seen strong gains over the past month.

Kunkle believes that the pandemic, strong US housing market and people moving from cities to the suburbs and rural locations will benefit the investment theme this year.

“As we look towards a future return to normalcy, the outdoor recreation lifestyle will continue to gain momentum due to several demographic shifts and a renewed focus on physical and mental health that is enhanced by outdoor recreation” - OptionsHawk founder Joe Kunkle

 

“As we look towards a future return to normalcy, the outdoor recreation lifestyle will continue to gain momentum due to several demographic shifts and a renewed focus on physical and mental health that is enhanced by outdoor recreation. Further, consumers will continue to invest in their home sanctuaries as a place to spend more time both for leisure activities and for work,” Kunkle told Opto in February. 

With the rise in outdoor pursuits, Teledyne could benefit. Among the analysts tracking Teledyne’s share price on Yahoo Finance, the stock has an average $429.60 price target, which would represent a 3.86% upside on the current price.

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