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Tuesday, October 09, 2007

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.

posted by Theflyonthewall.com at 2:45 PM

4 Comments:

  • Don't think the future "enemies" hasn't learned the power of the IED. Therefore I don't think the future of MRAPSs will be solely dependent on the war in Iraq. The Humvee has served its purpose but has a server flaw that has been exploited. The government (hopefully)will move in a different direction to protect the troops.

    By Blogger john, at 4:08 PM  

  • I think its safe to say that the MRAP concept is here to stay.

    By Blogger Jeffrey, at 4:28 PM  

  • Very well written, however,I completely disagree with your conclusions. I actually see some of the Democrat contestants for President as being a net positive for FRPT. This seems counterintuitive, as your conclusion seems to be the obvious deduction, except that I think you have to dig deeper. FRPT is the ultimate "support the troops" company. I mean literally, they fit the motto, which Democrats must portray if they are to be successful, and physically, they build equipment that saves lives.
    See Joe Biden's trips to meet with the company and comments on Meet the Press and in other places. He is the company's number one spokesman right now. Hillary is right on board as well.

    Pay close attention. Democrats are talking up rhetoric of bringing home "combat" troops. This is extremely carefully worded language, since many troops will stay for a long time, it's just that their mission will change. In addition, the US is retaining operating military bases there, which will be highly staffed and stocked with vehicles and equipment should they ever become necessary.

    In short, Democrats need to show support for the troops and buying armored vehicles is the number one way to look tough to independents while still appeasing the anti-war sentiment. The military needs the vehicles because war could start at any time, and the production cycles are quite long to actually produce them and get them in place.

    I believe that Force Protection is in a different class of defense stocks and stands to gain from either party because it manufactures what our military truly needs. Now, for a company looking for a contract to build an international missile defense system, probably not the stock you want to own with a Democrat in the White House.

    My two cents.

    M

    By Blogger mcginley77, at 4:37 PM  

  • After American troops finally leave Iraq the U.S. will continue to supply the Iraqi Army with arms and equipment to fight the insurgency. The insurgency is not going away. The Iraqi government is going to insist on providing its army with MRAPs.

    By Blogger st_austin, at 5:06 PM  

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