OSI Systems shares soar on DHS agreement

OSI Systems shares soar on agreement with federal government on scanners, software

Associated Press

HAWTHORNE, Calif. (AP) -- OSI Systems Inc.'s shares soared Friday after the company announced a settlement with the federal government that will allow use of its full-body scanners to continue.

THE SPARK: The company said Friday that its Security division, Rapiscan Systems, and the Department of Homeland Security have reached an agreement settling concerns about Rapiscan's full-body scan system and associated software.

As a result of this agreement, Rapiscan can continue its current and future business with U.S. federal government agencies

THE BIG PICTURE: OSI said in May that the government had issued the company a "notice of proposed debarment" related to its full-body scanners used in airports that had raised privacy concerns.

The government could then withdraw the notice, come to an agreement with the company or exclude it from future contracts. The notice also restricted Rapiscan's access to new federal government contracts or subcontracts.

The scanners are designed to spot metallic objects like guns and non-metallic items such as plastic explosives, but they also show naked images of passengers' bodies. That had prompted Congress to order that they either produce a more generic image or be removed by June.

A representative for OSI was not immediately available to provide further details on the terms of the agreement.

THE ANALYSIS: Roth Capital Partners analyst Jeff Martin said the agreement should lift the company's shares to near the $66 level, they were trading at prior to the debarment notice.

The company may still face some tricky times ahead, as its security business relies heavily on government funding. The analyst said that government spending tends to be inconsistent, programs are often delayed and there is no guarantee its technology will gain the political support it needs for funding.

SHARE ACTION: OSI shares fell nearly 20 percent in the days following the debarment announcement. But its stock soared $8.18, or 14.7 percent, to $64 by late afternoon Thursday. Shares have changed hands between $48.10 and $81.23 in the past 52 weeks.

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