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Force Protection


fans have high hopes for the next stage in the government's armored-vehicle procurement effort.

Billions of dollars will be at stake in a program now widely called MRAP II. The big-budget sequel to the Mine-Resistant Ambush-Protected vehicle program funds the purchase of vehicles that can protect U.S. soldiers deployed overseas from threats like mines and bombs.

Force Protection landed a big role in the original MRAP program. But with the curtain set to rise on MRAP II, Force Protection may be forced to share the spotlight with deep-pocketed rivals including


( NAVZ) and a new venture formed by





( CRDN).

Ladson, S.C.-based Force Protection believes it is up to the task, but some observers suspect the result will be even more pressure on Force Protection's once-highflying stock.

"Even as talk of pulling out of Iraq grows louder, the military has been recruiting other, bigger contractors to help with production,"

The Wall Street Journal

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noted earlier this month. "The big companies are diversified builders of everything from ships and Gulfstream jets to dump trucks, while tiny Force Protection largely owes its existence to building MRAPs for the U.S. military's campaign in Iraq. ... More than its rivals, Force Protection's volatile shares waver on the news of MRAP awards going to other contractors."

Just compare the stock charts of

General Dynamics


and Force Protection, for example. The two companies rank as equal partners in a joint venture competing for MRAP awards. But General Dynamics depends on MRAP business far less, so it trades within a few dollars of its all-time high. Force Protection, up 7 cents to $15.98 on Tuesday, has lost half its stock-market value after hitting a record earlier this year.

That steep decline actually emboldens Force Protection bulls, though.

"The stock is cheap virtually no matter what

earnings assumptions one makes," C.E. Unterberg Towbin analyst James McIlree said last month. "This is the type of environment the

big players wait for to make acquisitions, when a stock tumbles and much of the risk has been taken out of the shares."

McIlree has a buy recommendation and a $32 price target on Force Protection's stock. His firm has investment banking ties to the company.

Looking ahead, McIlree calls MRAP II "the next battlefield" for Force Protection. Given its strong performance and production record so far, he feels that Force Protection should enjoy a definite edge in that fight.

Meanwhile, Force Protection has been loudly reminding the military of its strengths. This summer, the company launched an advertising campaign targeting the likes of

Defense News


Military Times

that touts "the unmatched battlefield performance" of its popular MRAP vehicles.

"Our business is the protection of our troops facing deadly explosive threats on a daily basis," stated Force Protection Vice President Michael Aldrich. "We feel it is important for them to know that there is a proven solution that is being manufactured and delivered as quickly as possible to support them in their critical mission."

Force Protection has been making those claims for some time, even as rivals like Navistar have managed to land huge contracts and meet tough production deadlines to boot.

Going forward, two newcomers -- Oshkosh and Ceradyne -- hope to snag a piece of the action as well. Their new vehicle, known as the Bull, can withstand hits from powerful "explosively formed penetrators" and is therefore considered an early favorite for MRAP II awards. Still, the companies are realistic about their odds.

"While Oshkosh is optimistic about its chances to play a larger role in MRAP II ... it believes that competitors currently building MRAP I vehicles may have an advantage," Robert W. Baird analyst Robert McCarthy wrote this month. Still, "management appears confident it has learned from its MRAP I experiences and that its proposal for MRAP II will be considerably stronger."

McCarthy has an outperform rating and a $75 price target on Oshkosh's stock, which rose 3.5% to $56.55 on Tuesday. His firm has investment banking ties to the company.

Ceradyne, which tapped Oshkosh as its partner earlier this year, clearly expects the Bull to burst onto the MRAP scene. The company -- already the top supplier of body armor for U.S. soldiers in Iraq -- stands to pick up some new followers if that happens.

"Vehicle armor represents a large new potential market," Morgan Joseph analyst Michael French stressed when initiating coverage of Ceradyne last month. French, whose firm seeks to do business with the companies it covers, has a hold recommendation on Ceradyne now -- but he indicates that could change.

"If ... the company is successful in its vehicle armor initiatives -- and that becomes evident this fall -- we would become more aggressive on the shares," he wrote.