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Two analyst and top management from eight sector firms examine the security products & services sector in this special 38-page Security Products & Services issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info516.htm.

TWST: Following September 11, how have the security stocks performed?

Mr. Kessler: The security stocks initially responded with uncommon zeal. Wall Street's old view of security was that of a group of companies involved in a necessary but negative sell, an industry of service companies with steadily growing cash flows, but not something that was necessarily demanded by corporate clients. Following September 11 that has changed. We won’t predict how permanent that change is. But from Wall Street’s point of view, the stocks of most companies reacted dramatically. While it is hard to pinpoint the long-term opportunity, it is clear that homeland security and consulting as well as protecting corporations and national interests abroad are going to require a heightened use of security provided by a select number of these public companies.

TWST: Following the events of the past year, are we seeing an influx of a lot of smaller companies into the industry?

Mr. Kessler: It’s hard to say. At the commodity end, alarm equipment manufacturers and analog closed circuit television equipment manufacturers can enter this market without a lot of barriers to entry. The problem is gaining share with any account that is meaningful. The largest service companies in the service area that buy from the manufacturers, which would include the ADTs and Securitas’s of the world, buy directly and don’t have to go through the dealer system that has more or less dominated the alarm equipment industry for so long. With consolidation comes these large companies that are increasingly buying directly, making it unlikely that anybody small can gain any traction in this industry. It is clear that there is a lot of technology that has been pumped into this industry for the last 20 years. The problem has been turning technology, along with seasoned management, into mature companies that can generate consistent earnings and cash flows over a long period of time. These characteristics have been the exception rather than the rule in the security industry, and the few companies that end up generating consistent revenue growths and cash flows, such as ADT on the services side, end up being acquired. The same thing can be said for those companies on the equipment side that have generated large enough bases of revenue to be attractive to Wall Street. It seems the minute they’re finally attractive to Wall Street, they also become attractive to large players that want to have a security platform of their own.

TWST: What are your favorite names in the group?

Mr. Kessler: Even though it stretches the definition of security a little bit, we like Symbol Technologies (NYSE:SBL) for the long haul. Another company that we’ve liked is Checkpoint Systems (NYSE:CKP). Checkpoint is a leading provider of anti-theft equipment as well as RFID tag technology. Unfortunately, Checkpoint’s stock price has run dramatically, from about $10 to $16, not post-September 11 but post-January 1. So we think that the stock is much more fairly priced at this point, and we would only buy that stock on pullbacks.

This special issue includes:

1) Outlook for Security Stocks - In an in-depth (4,000 words) Analyst Interview, Jeffrey T. Kessler, Senior Vice President at Lehman Brothers, examines the outlook for the sector including and shares specific stock recommendations.

2) Security Products & Services - In an in-depth (2,600 words) Analyst Interview, Peter J. Barry, Managing Director for Small Companies at Bear, Stearns & Company, examines the outlook for the sector including and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of eight sector firms examine the outlook for their firm and the sector.