OSI Systems advances towards scaled growth

Published: 2025-07-15 05:23:39 ET OSIS

Published on 07/15/2025 at 05:23

By Joshua Cooper

OSI Systems, Inc. has demonstrated robust yearly performance, showcasing substantial revenue and net income growth for Q3 25. The company's latest financial results highlight strong fundamentals, driven by strategic segmental growth and innovative security solutions. In addition, OSI Systems has strengthened its global footprint and financial flexibility, supporting long-term value creation and growth projections.

OSI Systems, Inc. is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. The company was incorporated in the State of Delaware in 1987 by Deepak Chopra and has around 6,680 employees. The company sells its products in diverse markets, namely: homeland security, healthcare, defense and aerospace. OSIS operates through three operating divisions: Security, which accounts for 68% of the revenue, Optoelectronics and Manufacturing, with 21% contribution followed by Healthcare with 21% contribution to revenue.

In addition, the company is also geographically segmented into four regions, including, U.S. (33%), Other Americas (32%), Europe, Middle East, and Africa (20%), and Asia Pacific (15%).

The diverse segments manufacture and develop security screening systems, solutions and services for civil infrastructure and critical government, OEMs and hospital and cardiac care markets.

OSI Systems posted record net sales of $444m in Q3 25, up 9.6% y/y, driven by robust segmental growth. EBIT, therefore, rose to a record $58.5m in the quarter, reflecting a 11.7% increase, with a margin of 13.2%. Net income rose 20.8% y/y to $41.1m. The Security division's revenue grew by 10.1%, driven by acquired businesses and an expanded installed base of products. Revenue for the Optoelectronics and Manufacturing division was bolstered by the contract manufacturing business. The Healthcare division saw a rise in revenue primarily due to increased patient monitoring sales.

OSI Systems recently secured a $14m contract to supply mobile cargo and vehicle inspection systems to an international client. These mobile units provide the flexibility to relocate checkpoints, thereby enhancing security measures. Ajay Mehra, the CEO, highlighted the strategic importance of this deployment. This contract not only strengthens OSI’s global presence but also supports its revenue and growth projections.

In addition, OSI Systems announced the expansion of its senior secured credit facility from $750-825m, with the maturity date extended to July 2030. The revised facility offers improved pricing, relaxed covenant restrictions, and greater financial flexibility. This strategic move is aimed at supporting growth and long-term value creation, while also bolstering the company’s liquidity position and reinforcing lender confidence in its performance and outlook.

OSI Systems reported a solid top line performance over FY 21-24, posting a revenue CAGR of 10.3% to reach $1,540m. EBIT rose at a CAGR of 14.5% to $189m in FY 24, with margins expanding by 146bp to 12.3%. Net income increased at 20.1% CAGR over the same period, reaching $128m in FY 24.

The cash and cash equivalent rose from $80.6m at end-FY 21 to $95.4m at end-FY 24. The group’s total debt also increased from $301m at end-FY 21 to $552m at end-FY 24. The ROE improved from 12.2% to 16.1%.

In comparison, Leidos Holdings, Inc., a local peer, reported a revenue CAGR of 6.7% over the past three years to $16.7bn in FY 24. EBIT surged at a CAGR of 16% to $1.8bn in FY 24, with margins expanding from 12.2% to 17.5%. Net income rose at a CAGR of 18.5% to $1.3bn.

The analysts project net sales to reach $1,889mbn in FY 27 with a CAGR of 7.1% This growth is driven by a strong business model supported by macro tailwinds, with high recurring and reoccurring sales across diverse and growing end markets. With 10,000+ installed systems and rise in blue-chip customer base, OSI Systems continues on a growth trajectory. The operating income is projected to reach $268m in FY 27 with a growth rate of 12.3%, backed by a track record of robust financial performance and growth momentum with focused R&D to drive technological innovation.

In addition, analysts estimate a net profit CAGR of 12.9%, reaching $185m with margins expanding from 12.3% to 14.2% in FY 27, with EPS expected to increase to $10.5 in FY 27 from $7.4 in FY 24. Likewise, analysts estimate EBIT CAGR of 5.2% and net profit CAGR of 5.2% for Leidos Holdings.

The company’s stock has shown strong long-term growth, delivering a 212.64% return over 5 years, indicating consistent value creation. In Comparison Leidos Holdings delivered decent 86.05% over the same period. Over the last year, the stock return remained up to 38.87%, which is considerably higher than the decent 14.23% rise in stock returns of Leidos Holdings. This performance can be attributed to strong organic growth in bookings, robust product pipeline delivering next-generation solutions and portfolio breadth.

The company is currently trading at a P/E of 24.5x, which is higher than its 3-year average of 18x and Leidos Holdings’ P/E ratio is 15.8x, this indicates a potential valuation premium relative to its historical norms . Based on the estimated EPS of $8.7, with a y-o-y growth rate of 16.53%, the company stock demonstrates strong earnings momentum. The company has an EV/EBIT ratio of 18.5x, which is slightly above its 3-year average of 15.2x, indicating a valuation upside compared to historical norms. It also trades at a significant premium to Leidos Holdings, Inc. with an EV/EBIT ratio of 12.5x.

OSI Systems is monitored by six analysts, three of whom have ‘Buy’ ratings, two have ‘Outperform’ ratings, and one has ‘Hold’ rating for an average target price of $243.33, implying 14.4% upside potential from the current market price.

Overall, OSI Systems, Inc. is well-positioned for long-term growth, backed by robust financial performance, expanding international presence, and a healthy pipeline of contracts. However, rising debt levels, premium valuations compared to peers, and reliance on government and defense contracts pose potential risks. Sustaining growth will depend on continued execution, market stability, and prudent financial management.

Joshua Cooper