Through The Fly's Eyes: Force Protection
from Larry Ramer of Theflyonthewall.com
Anticipation of Election Results May Ground Force Protection
Right now, armored vehicle maker Force Protection (FRPT) is rolling along quite well. However, the company’s prosperity may be short-lived -- if it looks in the middle of next year as though a Democratic candidate will win the U.S. presidency.
The Army has ordered more than 1,900 of the company’s mine-resistant vehicles this year. A provision currently being considered by Congress would raise funding for mine resistant ambush protected vehicles, or MRAPs, by $26.3B. Force Protection is seen as one of the major beneficiaries of higher MRAP funding by the government.
Force Protection will also likely bid to fill the military’s request for 8000 light-armored vehicles with its Cheetah series, according to C.E. Unterberg analyst James McIlree, as quoted by CBS Marketwatch. If Force Protection’s bid is successful, the Cheetah may eventually replace the Humvee in the military’s fleet, McIlree suggested.
Force Protection’s stock is only trading at 15 times forward 2008 earnings, leading McIlree to suggest that the company could become a buyout target.
But there could be a good reason why investors are skeptical about paying high prices for Force Protection’s stock. The Army’s demand for MRAPs are largely driven by the war in Iraq, where roadside bombs are responsible for the deaths of many U.S. soldiers. The Democratic candidates for President have all vowed to quickly downscale America’s presence in Iraq. If the Democratic nominee looks set next summer to win the election in November 2008, Force Protection’s stock will likely suffer, as investors anticipate that the Army will need less of the company’s armored vehicles.
The Army could very well still order many MRAPs under a Democratic president in anticipation of future wars. However, it seems unlikely that the government will spend as much on armored vehicles as the Iraq war winds down with a Democrat in the White House.