Force Protection, Inc. (FRPT) ($3.59) primarily produces MRAP vehicles - mine protected ambush resistant vehicles - which are used to protect our troops from IEDs (Improvised Explosive Devices) used in Iraq and Afghanistan by the insurgents.
The company's balance sheet is clean, with around $70 million in cash and no debt. Fully diluted, there appear to be around 69 million shares outstanding. As of April 10th 2008, it appears that there are around 9 million shares short. This is potentially huge explosive fuel to propel FRPT higher than anticipated once the company gets all of it "ducks" in order.
It is our opinion that this company got into trouble because of rocketing growth that could not be handled by past management. According to MilitaryIndustrialComplex.com, FRPT has received contracts from October 2006 to May 2008 totaling over $2.2 billion for their MRAP vehicles and support and parts.
Resulting from a management re-shuffle, lawsuits by cry baby investors and late financial filings, FRPT's share price has suffered from a 52 week high of $31.00 to a recent low of $1.00. FRPT has had to survive its own chaos. Even though the share price has formed a huge crater within the pockets of bleary eyed investors, the contracts from around the world keep rolling in and yielding a backlog of over $1 billion, according to our calculations.
We believe that business will keep coming in, not only from the DOD but from other allies around the world that see the need to address this cowardly form of combat. It appears from a recent document that the Canadian government is ready to commit $60 million to purchase some MRAPs; visit here and see the mention of Cougar/Buffalo vehicles, which are two of the vehicles that FRPT produces. As recently as May 1, 2008, the company announced a contract with the UK for $94 million. The Italians, Canadians and English are only a few of the potential customers that want these vehicles. As of May 2nd, President Bush has introduced a bill for $70 billion for defense funding--$3 billion is to deal with roadside bombs and $2.6 billion to airlift "new" mine resistant vehicles into the war zones.
All roads lead to huge revenue and profits. The investor must first deal with current uncertain paths before the bank entrance is reached. The new auditor has been named - it just is unknown at this time when the 2007 10K and now 2008 10Q for Q1 will be released. Many investors cannot handle the "heat" and will sit on the roadside while things get sorted out--we prefer the more aggressive path to riches, which is to hop on the caravan early instead of late.
At present, the BK stated from the September 30, 2007 9-month 10Q equaled $3.57; the cash/sh was around $1.00/share; revenue was $441 million; and net income/sh equaled .34. From that point on, the numbers are unknown, but most believe that revenue reached $700+ million for 2007 and that estimated revenue for 2008 will be around $1 billion. These numbers result from the recent conference call and contracts being announced and contracts seen here.
Bottom line: The balance sheet look great; we have a huge backlog; defense spending in a growth mode around the world; if we enter a recession this business is not affected; large short position that adds bullish fuel for corporate positives; unloved; uncertain financial results; most likely a takeover candidate (General Dynamic (GD) could eat them for lunch) before or after financial filings brought up to current status; and just plain cheap based upon potential estimated PE, PSR CF/sh and EBITDA.
We rate FRPT with a strong but speculative buy recommendation at current levels. Start building a position, but don't blow all your powder at once - scale into this unloved gem.
Disclosure: We have not been paid by FRPT for our recommendation. We may buy, sell and or hold shares at our own discretion.