Last Update 16 Dec 25

OSIS: Future Upside Will Depend On Sustained U.S. Border Security Spending

Analysts have nudged their price target on OSI Systems higher toward the low to mid $300s, citing raised long term earnings estimates and strengthening demand tied to increased U.S. border security spending.

Analyst Commentary

Recent Street research on OSI Systems reflects a predominantly constructive stance, with rising price targets framed around upward revisions to long term earnings power and a robust demand outlook tied to U.S. border security initiatives.

Bullish Takeaways

Bullish analysts highlight OSI Systems as a strong thematic play on elevated and sustained U.S. border security spending, which they believe underpins multi year revenue visibility and supports higher valuation multiples.
Increased price targets into the mid $200s and low $300s are being justified by higher out year EPS estimates, as analysts model stronger than expected growth through the latter part of the decade.
Customs and Border Protection's accelerated upgrades and installations of new security systems are seen as a structural driver of orders, reinforcing confidence in OSI Systems execution and backlog conversion.
Maintained positive ratings alongside raised targets are viewed as a signal that, despite the recent run in the shares, upside remains if management continues to deliver on growth and profitability expectations.

Bearish Takeaways

More cautious analysts maintaining Neutral stances acknowledge solid fundamentals but question whether the current valuation already discounts much of the near term earnings upside.
Some see execution risk around sustaining elevated growth beyond the current border security upgrade cycle, which could pressure multiples if bookings or awards begin to normalize.
There is concern that dependence on U.S. border security budgets introduces policy and funding uncertainty, potentially leading to volatility in orders and investor sentiment.
While targets are being lifted, the narrower spread between price objectives and the current share price for some Neutral views suggests a less compelling risk reward profile versus other security and defense names.

What's in the News

The security division received an order of approximately $37 million to deliver advanced RF-based communication and surveillance systems, expanding its installed base in critical monitoring infrastructure (Key Developments).
The security division secured an order of approximately $23 million to support deployment of non-intrusive inspection systems at cargo and vehicle border checkpoints, reinforcing its position in border security solutions (Key Developments).
The company announced an order of approximately $20 million for a comprehensive radiological threat detection solution, including a wide-area radiation monitoring network to continuously detect and track radioactive threats (Key Developments).
The company raised its Fiscal Year 2026 revenue guidance to a range of $1.825 billion to $1.867 billion, up from the prior range of $1.805 billion to $1.850 billion, reflecting stronger demand visibility (Key Developments).
The company reported completion of a multi-year share repurchase program totaling 2,678,143 shares, or 15.28 percent of shares, for $231.46 million under the buyback announced May 1, 2020 (Key Developments).

Valuation Changes

Fair Value Estimate: Unchanged at approximately $295 per share, indicating no material shift in intrinsic value assessment.
Discount Rate: Risen slightly from about 8.83 percent to 8.84 percent, reflecting a marginally higher required return.
Revenue Growth: Essentially unchanged at roughly 5.91 percent, suggesting a stable outlook for long term top line expansion.
Net Profit Margin: Flat at about 10.42 percent, indicating no notable revision to long term profitability assumptions.
Future P/E: Increased very slightly from approximately 29.76x to 29.78x, implying a modestly higher forward valuation multiple.

Government-driven security spending and global infrastructure events are boosting demand for OSI's advanced screening and digital security systems, expanding its addressable market.
Expanding service-based revenue, innovative product development, and greater customer diversification support higher margins, resilient earnings, and long-term growth.
Dependence on government contracts, weak healthcare unit performance, and execution risks across divisions expose the company to significant revenue volatility, margin pressure, and operational challenges.

Catalysts

About OSI Systems

Designs and manufactures electronic systems and components.What are the underlying business or industry changes driving this perspective?

Significant, multi-year funding from recent U.S. government legislation for border, port, infrastructure, and large-scale event security (including the "Big Beautiful Bill" and Golden Dome program) is expected to drive a sustained increase in demand for advanced security screening systems and RF/radar technologies, positioning OSI for higher long-term revenue growth and expansion of its addressable market.
Rising global focus on transportation, border, and public infrastructure security (amplified by continued geopolitical tensions and major world events like the FIFA World Cup and Olympics) is driving increased investment in nonintrusive inspection equipment and integrated digital security
supporting OSI's ability to secure large, recurring contracts and build robust, future revenue pipelines.
Ongoing digitization and automation trends in healthcare, aviation, and industrial markets are fueling demand for innovative solutions like next-gen patient monitoring, AI-enabled imaging, and optoelectronic devices, enabling OSI to introduce higher value products with premium pricing, supporting margin expansion and top-line growth.
The shift towards a recurring, high-margin service-based revenue model
evident in record growth of service contracts (outpacing product sales) and widespread adoption of the CertScan platform
is expected to drive operating margin improvements and more predictable, resilient earnings.
Record backlog levels, global customer diversification beyond large legacy contracts like Mexico, and increased investment in R&D for differentiated platforms position OSI to accelerate earnings and free cash flow growth, and to better capitalize on long-term secular trends underpinning security and diagnostic infrastructure spending.

OSI Systems Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming OSI Systems's revenue will grow by 5.6% annually over the next 3 years.
Analysts assume that profit margins will increase from 8.7% today to 9.9% in 3 years time.
Analysts expect earnings to reach $199.7 million (and earnings per share of $11.94) by about September 2028, up from $149.6 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.2x on those 2028 earnings, up from 25.8x today. This future PE is greater than the current PE for the US Electronic industry at 23.9x.
Analysts expect the number of shares outstanding to grow by 0.69% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.64%, as per the Simply Wall St company report.

OSI Systems Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The company's recurring cash flow and liquidity is exposed to delayed payment cycles from sovereign customers (notably Mexico), suggesting structural risk of stretched receivables and working capital swings that could depress operating cash flow and heighten balance sheet risk, especially during periods of macro or political disruption. (Impacts net cash flow and liquidity)
Continued heavy reliance on government contracts, large single-customer orders, and unpredictable funding cycles-including upcoming legislation like the Big Beautiful Bill-means future revenue acceleration is dependent on execution of a highly concentrated pipeline and subject to budgetary delays, contract risks, and political shifts in both US and emerging markets. (Revenue volatility and uncertainty)
Healthcare division underperformance persisted, with negligible operating margins and soft sales despite ongoing investments; failure to turn around this segment or differentiate through innovation could lead to persistent margin drag and limit overall earnings growth relative to security and optoelectronics. (Net margin and consolidated earnings risk)
R&D intensity, despite recent uptick, remains focused primarily on core security markets; not matching the innovation pace of leading tech/security peers or failure to adapt to non-intrusive, software-first screening/biometric solutions could result in long-term product obsolescence and share loss to more agile competitors. (Long-term revenue and margin pressure)
Aggressive footprint expansion (including ramp-up of new manufacturing facilities and pursuit of turnkey contracts in emerging and international markets) increases execution risk and exposure to supply chain constraints; if not well-managed, this could result in inefficiencies, cost overruns, or margin compression, especially given escalating global trade friction and localization trends. (Net margin and profit risk)

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $249.5 for OSI Systems based on their expectations of its future earnings growth, profit margins and other risk factors.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $199.7 million, and it would be trading on a PE ratio of 27.2x, assuming you use a discount rate of 8.6%.
Given the current share price of $229.65, the analyst price target of $249.5 is 8.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

OSIS: Future Revenue And Margin Gains Will Rely On Border Security Demand