Investing July 27, 2009, 7:49PM EST

Stocks: Who's Ramping Up Revenues in a Recession?

Some companies, such as FLIR Systems, Apollo Group, and Darden Restaurants, have found a way to grow their businesses while the economy is shrinking

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This earnings season many firms have beaten Wall Street's profit expectations by slashing costs. But few have done so by going out and finding extra revenue.

In a recession, increasing your bottom line—your earnings—is difficult. Boosting your top line—your revenues—is often impossible. Still, some companies actually posted higher sales last quarter vs. a year ago.

One example is FLIR Systems (FLIR) a maker of infrared and thermal imaging cameras used in a wide variety of applications, from military to commercial and industrial. On July 23, FLIR announced second-quarter revenues of $278 million, a 6.5% increase from a year earlier. It's not that FLIR has escaped the effects of the recession. The company's growth rate has often been closer to 20%.

Enhancing Productivity

Michael Lewis, an analyst at BB&T Capital Markets (BBT), gives FLIR a "buy" rating and believes FLIR could grow consistently at 15% or more per year in the future. One of the drivers is the U.S. military's decision to put infrared technology in its vehicles over the next several years.

But it's not just government contracts that have helped FLIR. Commercial and industrial applications of its technologies—far more economically sensitive—have also remained popular. The company's products are deployed in ways that improve efficiency—by, for example, helping spot problems on factory assembly lines.

FLIR's technology is "a productivity enhancer," says Rob Lutts of Cabot Money Management, which owns shares. "Their products allow operations—whether government, commercial, or defense—to do more with less."

Lewis says FLIR is also beating out competitors by lowering its prices—which helps customers boost productivity even more. And, unlike rivals, FLIR is still spending heavily on researching and developing new products. "FLIR is out there introducing new technologies to consumers," which should boost market share, Lewis says.

Back-to-School Sales

One company that seems to be benefiting from the recession is Apollo Group (APOL). The for-profit education firm operates the University of Phoenix, which offers a range of degrees both on campuses and online.

In the last year, the University of Phoenix's total enrollment has jumped 21.8% to 420,700. Thus, last quarter, the Apollo Group was able to boost revenues 25.9% to $1.05 billion, according to its June 29 earnings report.

"A downturn drives more people to go back to school," says Amy Junker, an analyst at Robert W. Baird, who gives Apollo a "neutral" rating. A surge in new students began a year ago, just as the economy's troubles were getting especially serious, she says.

Steven Rogé of investment manager R.W. Rogé & Co. used to own Apollo shares but sold them after the stock rallied in late 2008 and early 2009.

He calls Apollo "the best franchise in for-profit education." One advantage, he notes, is that each additional student adds very little to the firm's costs. Thus, he says, "You don't need much revenue growth to have a terrific investment."

One worry for investors is how the Obama Administration's educational policies will affect the for-profit education business. President Obama and other Democrats may favor competitors like community colleges, while making business more difficult for for-profit operators. But, "Whether or not that's true remains to be seen," Junker says.