Force Protection: Ready to Roll

I have written about Force Protection (FRPT) a couple of times in the past, once in a not so flattering light, the other time using a more positive tone. In 2007, the stock soared to a high of 30.48 to a low this year of $1.03. Recently, however, the stock recovered. FRPT recently breached resistance in the $5.00 area. Moreover, on December 19, the 50 day moving average crossed above the 200 day moving average resulting in a golden cross - a bullish sign.

The reason for the $30 drop in share price? In a nutshell, FRPT was a small company that grew too fast. FRPT produces Mine Resistant Ambush Protected vehicles, (MRAPs) designed to protect soldiers from IEDs (improvised explosive devices). At first, FRPT was essentially a boutique firm, producing MRAPS on a limited basis for the U.S. Armed Forces and some of its allies. As the need for MRAPS increased, the amount of money available to defense contractors skyrocketed. It was difficult for FRPT to expand at such a fast pace, resulting in management problems.

In addition, the increased size in contract awards resulted in other players entering the picture, such as BAE (BAESY.PK), General Dynamics (GD), Navistar (NAV), Textron (TXT), and Ceradyne (CRDN). As an upstart defense contractor, it was difficult for FRPT to compete with companies well-acquainted with the Federal Government’s solicitation process.

Why the recent change in trend? Business-wise, Force Protection is in an excellent position. First, considering that President-Elect Obama is keeping the defense team largely intact, it is doubtful operations in Iraq or Afghanistan will change to the extent that FRPT's vehicles will not be required.

Second, the U.S. Army recently posted a request for proposals for an MRAP All-Terrain Vehicle (also known as M-ATV). Currently, BAE, Lockheed Martin (LMT), Navistar, Oshkosh (OSK), Textron, and FRPT are expected to compete for the contract to produce up to 10,000 M-ATVs. While this will ultimately result in a single source award (small contracts for prototypes will be awarded initially to successful bidders), FRPT will be in a good position to compete with its vehicle nicknamed the “Cheetah.”

Third, expectations for the company have been lowered. Many assumed FRPT was the company to beat in the initial MRAP competition. In hindsight, it may have been foolish to expect FRPT to outfox the beltway’s well-established defense contractors. Now that expectations have been lowered to a more reasonable level, share price can be driven by earnings. In Q3 of Fiscal Year 2008, FRPT blew away the 11 cent EPS by 18 cents. Estimates for next quarter are 10 cents. There is no reason FRPT cannot continue to handily beat these estimates, resulting in an increase in share price.

Chart-wise, FRPT faces resistance in the $7.00 area. Based on current price action, the stock should have no problem surmounting that obstacle.

Disclosure: No positions in any stocks at this time.

Comments

[Galaxie:]

Appreciate the effort on the article but it lacks meaningful detail or accurate research, similar to the previous articles. Technicals aside, this is a good example (albeit somewhat positive) of someone with a forum to give their opinion and 'facts', even if the 'facts' are wrong. Can someone remind when TXT or CRDN took any business away from FRPT? How about the test vehicle order in September for the Cougar Lite? Force Armor perhaps? Wheel blast technology? Potential Independent Suspension orders for the Marine's Cougars?
"There is no reason FRPT cannot continue to handily beat these estimates, resulting in an increase in share price."
Beating EPS estimates wont do anything to the price if the market doesn't see future growth. While sustainability monies should help the cause and continued Buffalo orders, to make the comment above lacks credibility and research, especially after the CEO Moody said NOT to expect the same level of revenues going forward as their MRAP I orders come to a close over the next few weeks.

These types of articles remind me of the idiotic Melissa Davis articles.

2008 Dec 30 09:16 AM