Investing in Fast Food and Drones

I’ve recently talked about two areas within the tech sector that are worth considering for investment: next-generation brick-and-mortar retail, and unmanned drones.

Below I’ll tell you how to invest in both of these areas with a single company.

The company is called PAR Technologies Corp (NYSE: PAR) and it has two business units: one that makes hardware and software solutions for the hospitality industry (hotels, spas, restaurants) and one that creates communications and intelligence systems for the military.

Both business units have had some pretty major wins in the last few weeks, so it’s time to take a closer look at PAR Technologies, and what it has to offer.

Heads: Retail and Hospitality Systems

Recently, PAR’s hospitality unit announced that America’s best-loved grocery store chain, Wegman’s, adopted its SureCheck system for food safety management.

Wegman’s has enjoyed steady growth on the East Coast in the last decade, and for the last sixteen years, it has been ranked among Fortune Magazine’s top ten best companies to work for. In 2013 it ranked the fifth best, with 8.3 percent job growth and just under 44,000 employees in total.

Because of its reputation for treating both employees and customers so well, Wegmans has been called the “Anti-Wal Mart.”

It’s also doing remarkably well, with the highest daily sales volume in the entire industry.

So where does PAR fit in?

PAR’s EverServ SureCheck system automates the Hazard Analysis and Critical Control Points (HACCP) program required in the food service industry. PAR’s system automates the records of mandatory temperature checks that ensure conditions are up to USDA/FDA code.

It seems like a small role, but it’s significant because Wegmans is a growing force which is said to have “exhausting standards” for quality and safety, and PAR’s SureCheck systems hadn’t been selling so well for the last quarter, so this turns things around a bit.

PAR’s food retail systems saw year over year domestic growth, and the segment’s 10 percent overall growth came from the continuing boom international product revenue.

Mainly this was thanks to an exclusive deal PAR has with McDonald’s covering its aggressive Chinese growth strategy. In 2012, McDonald’s opened 256 new stores in China, and it planned to open more than 1,600 new stores this year.

However, Mcdonald’s has delayed some new store openings due to sluggishness in the Chinese market. So far it looks like the new stores have not appreciably increased McDonald’s market share.

Previously, PAR’s international growth was covering the softness in SureCheck sales, but the recent growth of Wegman’s should provide some stabilization in the near term.

Wegman’s currently has 89 stores in operation, and plans to open nine more within the next year. Since the company was founded in 1916, this seems like a rather slow growth rate. But it must be considered that each store is between 80,000 and 140,000 square feet in size, so coverage is massive. 

This is important because PAR doesn’t typically enter into long-term contracts with its hospitality customers, so there is always potential volatility in this end of the business. Fortunately, PAR expects to have enough cash to cover expenses for the next twelve months without having to seek additional funding.

Tails: Defense Systems

PAR Government, the other side of the company, offers military-grade tech products and services which include a couple of key areas in defense technology.

These include ISR (Intelligence, Surveillance, and Reconnaissance) “vision” systems for drones, a system for incorporating consumer mobile devices into military communications networks, and LiDAR (laser radar) analysis systems.

The company also does engineering and IT work on a contract basis. That’s where the company’s most recent announcement came from.

This week, a PAR subsidiary called Rome Research (RRC) announced it had won a five year, $5.2 million contract with the U.S. Navy for operations and support of a submarine command center in Aguada, Puerto Rico.

“The Aguada site consists of an AN/FRT-95 series transmitter, a Top Hat Monopole 1,200-foot base insulated antenna, and associated hardware, equipment and facilities. Contract support services include transmitter site operations and maintenance, antenna tower maintenance, facilities upkeep and grounds maintenance. “

AN/FRT-95 is an old radio broadcast transmitter that works in the very low frequency range. It was first made by Continental Electronics Corp. back in 1984. It’s very much a legacy system, but these sort of support jobs carry a high profit margin.

PAR’s stock is still riding high after scoring the largest contract in its entire history just two months ago. The $85 million, three-year contract is for the company’s ISR systems for U.S. Army drones. When the deal was announced, PAR shares leaped 6 percent and have been climbing ever since. It’s currently 47 percent above its 52-week low, but it has cooled down a little in the last couple of days.

This aspect is a major consideration because it has the capability of encroaching on all its other work.

The last two quarters, PAR has been in the black, with its net income increasing. In the quarter ending in June, net income was $57 million. Then in the most recent quarter, net income had risen to $440 million.

PAR increased its income while diminishing its revenue. The company’s services revenue dropped 12 percent, there was a decline in call center revenue, and contract revenues declined overall because PAR has to appropriately allocate capacity for this huge Army contract.

As it stands, the U.S. Department of Defense contributes 37 percent of PAR’s total revenue. Mcdonald’s and Yum! Brands contribute a combined 33 percent, and everyone else contributes 30 percent. It’s a pretty even split between PAR’s two divisions.  

Fortunately, they’re different enough buisnesses to balance each other out, and the time to bet on PAR is when both units are firing in sync.