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Force Protection Hits More Bumps

The government takes issue with the military-vehicle maker's financial reporting.

OKLAHOMA CITY -- The road for

Force Protection

(FRPT) - Get Freshpet Inc. Report

continues to be bumpy, with the company posting mixed results -- and fielding complaints from the government -- in the latest quarter.

Force Protection's third-quarter revenue surged 389% to $206 million, toppling the consensus estimate, due to skyrocketing sales of the company's popular mine-resistant ambush-protected vehicles.

Profits grew even faster, hitting $11.4 million in the quarter and coming in 47 times higher than they did just one year ago. Even so, earnings per share of 16 cents actually fell a penny shy of Wall Street targets.

Still, Force Protection is clearly struggling to manage that explosive growth. Notably, the company continues to report material weakness with its internal controls, and now it fails to meet the government standards established for companies of its size.

Indeed, Force Protection has already weathered some scathing reviews from the U.S. Defense Contract Audit Agency.

"The DCAA has issued audit reports that have been highly critical of our finances and financial accounting system, that have questioned our ability to perform our government contracts and that have questioned or disallowed significant proposed charges under some of our government contracts," Force Protection revealed in its official third-quarter report.

Importantly, "an adverse finding under a DCAA audit could result in the disallowance of our costs under a U.S. government contract, termination of U.S. government contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government," the report said.

Force Protection's stock recently was down 4.2% to $16.95 following the company's update. The shares hover near the bottom of their recent six-month range.

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For its part, Force Protection has promised to take the steps necessary to remedy its financial reporting problems. If anything, however, the situation seems to be growing worse over time.

Based on its regulatory filings, Force Protection needs proven experts that it may fail to attract in the end.

"The control deficiencies that contributed to our material weaknesses included our lack of a sufficient complement of personnel with an appropriate level of accounting knowledge, experience with our company and training in the application of generally accepted accounting principles, or GAAP, commensurate with our financial reporting requirements," Force Protection stated in its latest quarterly report. "During the third quarter, we have also encountered turnover in financial reporting personnel. (And) we have in the past encountered difficulties in identifying and hiring qualified personnel and managers."

Despite those recent setbacks, most analysts remain wildly enthusiastic about Force Protection's stock. They expect the shares to climb back above $25 -- and possibly even $35 -- going forward.

Friedman Billings Ramsey analyst Patrick McCarthy is among that bullish crowd. McCarthy expects Force Protection to stop losing MRAP market share and start growing it instead. He is urging investors to buy the company's stock before that happens.

McCarthy's firm makes a market in the company's securities.

"FRPT has some work to do to finalize the implementation and upgrading of its financial systems, given that the 10-Q was filed late and indications that the DCAA has been critical of its accounting system," McCarthy admitted on Wednesday. "Ideally, we will see improvements in that area as the company grows.

"However, based on these results and our estimation that FRPT will have a strong showing in future awards, we reiterate our outperform rating and $25 price target" on the company's stock.

Still, at least one expert keeps pushing investors to sell Force Protection's stock instead.

"We believe disappointments could emerge regarding (Force Protection's) market opportunities, market share and margins," Stephens analyst Tim Quillin wrote on Wednesday. "Even after a recent sell-off, the stock is priced for a near best-case scenario."

Ultimately, Quillin predicts that Force Protection's stock will fall to $14 -- and possibly lower -- over the next 12 months. His firm makes a market in Force Protection's securities and hopes to secure investment banking business from the company down the road.