Investors' optimism surrounding the shares of airport security systems makers could be premature as interest in the companies' products after the Christmas Day plane scare is not expected to translate into immediate orders.
Shares of explosive-detection equipment makers OSI Systems, American Science and Engineering and ICx Technologies Inc. rallied for a second day on Tuesday as investors bet on swift government action to improve airport security.
Analysts believe the failed Dec. 25 attempt to blow up a Detroit-bound airliner will accelerate the process of testing new equipment, but any laws requiring its use will depend on Congressional action.
"If this was a successful terrorist attack, the orders would be coming down in January," Brian Ruttenbur of Morgan, Keegan Securities said. "Because it wasn't a successful attack, the government will hold hearings about what broke down."
The companies' shares tend to go up for a couple of days whenever there is a similar incident and then settle back down, he said.
Shares of OSI Systems and ICx Technologies rose in double digits on Monday, the first day of trading after the Detroit incident, while AS&E and baggage screener Analogic Corp. rose in high single digits.
But the stock action is a knee-jerk reaction, Arnie Ursaner with CJS Securities said, adding that wider testing of the equipment and appropriation of the money to install it in airports could take a year or more.
Ursaner said "backscatter" technology in particular could benefit from the Detroit incident.
AS&E and OSI Systems are leaders in this technology, which can detect explosive materials hidden under a person's clothing — exactly the kind of situation that occurred over the weekend.
"Even if there is an event, it does not change how contracts are awarded," AS&E Vice President Joseph Reiss told Reuters. "It could be months."
The incident highlights the vulnerability at airports and shows that metal detectors are ineffective against explosives, he said.
Fewer than 20 U.S. airports currently use the backscatter technology, and implementation has been delayed by privacy and health concerns.
Another company that is expected to benefit is ICx Technology, which offers products that can detect chemical, biological, radiological, nuclear and explosive threats.
ICx Executive Chairman Hans Kobler told Reuters the company was talking to relevant agencies about new orders, which it expects to receive within months, not years.
OSI Systems, which makes products for cargo, vehicle and personnel inspection, touched a 16-month high on Tuesday.
Analogic, a maker of advanced explosive-detection equipment for screening checked baggage and checkpoint carry-ons, was trading slightly down.
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