Tuesday, May 14, 2013

Napco Security Technologies ( Nasdaq - NSSC ) -- College Lock Downs Lift Outlook

Napco Security (NSSC $4.25) reported good on target Q3 (March) results.  Performance was impacted by the after effects of Hurricane Sandy.  The company sells its home security line through independent dealers.  Many of those were preoccupied with other parts of their business, like replacing heating and air conditioning systems that were destroyed in the storm.  Several dealers merged during the quarter, as well.  That also interrupted order flow.  Napco's traditional door lock business gained momentum, though.  Part of that stemmed from internal management changes that were put into place last year.  A pick up in new construction activity provided further impetus.  Overall, sales were flat at $17.2 million.  Income dipped year to year to $.01 a share.

Napco landed a major order ($1.5 million) from a university for a campus wide lock down system.  The technology employs wireless communication, so it can deployed without tearing apart any walls.  A wide range of controls will be included, allowing officials to remotely lock down in seconds whatever doors are appropriate.  If necessary, the entire campus can be locked.  The potential for additional campus security business is strong.  Universities tend to be well financed.  Students and their parents are increasingly concerned with security.  And Napco's technology is designed for the task, unlike competing products that require substantial customization.  The company offers lower cost options for public schools, as well.  School security systems have the potential to become substantial profit contributors in fiscal 2014 (June) and beyond.

Napco's high potential digital home security line was launched in the current quarter (June).  Those systems allow residents to control, with a mobile device, their home's security systems, lighting, heating, and webcams.  Earlier in the year Napco introduced a wireless connection to the central monitoring station, eliminating the risk of thieves cutting the telephone line.  Those units have been particularly attractive to customers without land lines.

Fourth quarter (June) results promise to be solid.  The big college campus order should offset any continued weakness from last fall's hurricane.  (A large portion of Napco's business is in the affected area.)  Our estimates are unchanged for both fiscal 2013 and fiscal 2014.

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