I'm always on the lookout for less obvious investment opportunities, niches that can be easily overlooked. Lately, I've seen several news stories about police departments equipping officers with body-worn video cameras. So, I wondered, is there money to be made by investing in the manufacturers of these camera systems?
What are body-worn cameras?
Increasingly, law enforcement agencies are adapting this technology. In response to complaints and lawsuits related to claims of excessive force, police departments around the globe are starting to require their officers to wear body-mounted cameras. In Rialto, Calif., police officers began testing body cameras in February 2012. After one year, the department found that use of force had dropped by 60% and citizen complaints against officers had dropped by 88%.
There are various models of camera systems available. Some cameras are mounted to officers' uniforms, while others are worn like in-ear Bluetooth devices or are mounted to pairs of glasses like the camera in Google Glass. Wherever they are mounted, the idea is the same: they provide video records of officers' interactions with the public. The footage captured by these cameras can protect officers from false claims of excessive force, or it can act as an advocate for a victim of actual police brutality. As more and more departments outfit their officers with these cameras, it seems that shareholders of companies that manufacture such cameras stand to benefit.
The big name in the game
Perhaps best known for its handheld stun guns, TASER International (AXON 2.84%) is also making a name for itself as an industry leader in the manufacturing of body-worn cameras for use in law enforcement. In fact, the London Metropolitan Police Service just placed an order for 500 of its AXON Flex camera systems. The MPS is launching a yearlong pilot project to test the use of body-worn cameras. With 31,000 officers working for the MPS, if the department decides to equip all officers with AXON Flex cameras, it could be a huge win for TASER.
As departments adapt body-worn cameras, TASER is in a good position to benefit more than much of its competition because of its ongoing relationship with police departments across the globe, as 17,000 police departments have already purchased TASER's flagship stun guns.
The lesser-known pioneer
In 2005, L-3 Communications (LLL) acquired a small company named Mobile-Vision, a pioneer of in-vehicle recording devices, or what we now call "dash cams." Today, L-3 Mobile-Vision manufactures digital in-car recording systems, motorcycle-mounted recording systems, interview-room recording systems, license-plate recognition systems, and the VIEVU body-worn video camera system.
Like TASER, L-3 Mobile-Vision has existing relationships with police departments. Recently, as part of a $2.3 million technological upgrade of its police department, the Scottsdale, Ariz., suburb of Paradise Valley equipped its officers with in-car and body-worn camera systems from L-3 Mobile-Vision.
In general, investing in something that is sold to cash-strapped municipal governments may not result in great success. However, when it comes to body-worn camera technology, police departments across the globe seem to be freeing up cash for this technology. In the long run, outfitting every officer in a department costs less than defending or settling even a couple of excessive force lawsuits.
Of course, by investing in either TASER or L-3 Communications, you are not investing in just body-worn cameras. Both companies have other operations, especially L-3 Communications.
However, TASER has a lot going for it in general. As a fellow Fool recently wrote, TASER has announced a buyback of up to $30 million of its own stock. It also recently reported earnings of $0.06 per share, which beat analysts' consensus estimate of $0.04. Additionally, an analyst at Dougherty & Co upgraded TASER from a hold to a buy.
L-3 Communications too received a recent upgrade by analysts, who also raised the company's price target from $124 to $135. The company also beat analysts' consensus EPS estimate by $0.04 per share on revenue of $3 billion with its first-quarter earnings.
So, while police body cameras are but one piece of these companies' overall operations, both companies appear strong right now. As body-worn cameras become more ubiquitous, both TASER and L-3 Communications stand to see increased revenue from their body-camera systems.