OSI Systems: Riding the Border Security Boom with Recurring Revenue and Geopolitical Tailwinds

As global tensions over migration, cross-border crime, and regional conflicts escalate, border security infrastructure has emerged as a critical investment theme. Among the companies positioned to capitalize on this trend is OSI Systems (OSIS), a leader in advanced detection systems for borders, airports, and ports. Its recent contract wins, robust recurring revenue streams, and strategic alignment with geopolitical demand make it a compelling play on a multi-decade security boom.

The Backlog Bonanza: Recurring Revenue Anchors Growth

OSI's $1.8 billion backlog as of early 2025—a record 100%+ of its 2024 revenue—signals a pipeline of predictable earnings. This is fueled by lifecycle support agreements, which provide maintenance, upgrades, and training for its systems long after initial sales. For instance, the $56 million May 2025 deal for its Eagle® M60 ZBx and ZBV® systems includes ongoing service contracts, ensuring recurring revenue for years.

The company's Q1 2025 revenue surged 23% YoY to $344 million, with its Security division growing 36%—a pace that continues into Q2, where revenue hit a record $420 million. Analysts now expect full-year 2025 revenue of $1.67–1.695 billion, up from $1.2 billion in 2024. This trajectory is underpinned by $112 million in new contracts secured in early 2025 alone.

Geopolitical Demand: From Poland to the Middle East

OSI's growth is not just cyclical—it's structural. Geopolitical flashpoints are driving $200+ billion in border security spending by 2030, and OSI is a key beneficiary:

1. European Migration Pressures: Poland's stricter border controls, implemented in 2025 amid rising illegal crossings, mirror broader EU concerns. OSI's radiation monitoring systems and Z Portal® high-throughput scanners are already deployed in European ports, with a $11 million June 2025 contract for radiation portals reflecting this demand.

2. Middle East Instability: Yemen's retaliatory strikes on Israeli positions and Iran's ongoing nuclear brinkmanship have intensified calls for advanced detection systems. OSI's ZBV® systems, used for non-intrusive cargo screening, are critical in regions where smuggling of weapons and contraband is rampant.

3. U.S. Border Priorities: Over 70% of OSI's security revenue comes from U.S. contracts, including Mexico-Canada border initiatives. The Biden administration's $1.5 billion FY2025 request for border security tech aligns with OSI's expertise in X-ray and backscatter imaging systems.

Risks, But High Barriers to Entry

OSI's reliance on U.S. government contracts poses risks: a budget cut or policy shift could disrupt revenue. Competitors like Thales (THLFP) and Smiths Detection (SMIN.L) also loom. However, OSI's niche technologies—such as its Eagle® multi-energy systems, which no rival replicates—create high switching costs for customers.

The Culper Research report alleging financial irregularities in a Mexican defense contract (denied by OSI) remains a reputational overhang. Yet, OSI's strong free cash flow ($41.78 million TTM) and current ratio of 1.88 suggest it can weather scrutiny.

Investment Thesis: A Buy for Long-Term Growth

OSI trades at a P/E of 18.6x versus peers' 22.5x, despite its faster growth. Analysts at Goldman Sachs rate it a “Strong Buy” with a $228 price target—a 25% upside from current levels. A backtest of OSI's performance after strong earnings (revenue growth >20%) shows a 22.7% CAGR over 90 days, suggesting it's a “buy the dip” stock.

Conclusion: A Security Play for the Decade

OSI Systems is not just a border tech supplier—it's a beneficiary of a geopolitical arms race where nations are investing in “hard infrastructure” to protect borders in an era of rising instability. With a backlog that guarantees years of revenue and a technological moat that deters competition, OSI offers a rare combination of defensive cash flows and secular growth. Investors seeking exposure to global security spending should consider a long position, even amid near-term volatility.

Final Note: Monitor geopolitical headlines, especially U.S. defense budgets and Middle East tensions, for catalysts.