OKLAHOMA CITY -- When seeking gains in the global war on terror, joining forces with a perceived superpower can sometimes backfire. Just look at
At first, Spartan seemed to have the perfect ally in
. Force Protection monopolized early orders handed out by the U.S. government for mine-resistant, ambush-protected (MRAP) vehicles. This story is the final installment in
five-part series examining the top players in the multibillion-dollar MRAP bidding.
Force Protection, in turn, passed some of that business along to Spartan -- which was responsible for making the MRAP vehicle chassis -- and fueled a spectacular rally in both companies' shares.
But then Force Protection rivals started winning huge MRAP contracts of their own -- posing a serious threat to both companies. Shares of both Force Protection and Spartan have since been under pressure -- leading some investors to reconsider their holdings in the once-hot stocks.
Ferris Baker Watts analyst John Rogers first highlighted concerns about Spartan's military business -- rather than the company's more established fire truck operation -- when scaling back his own expectations.
"We have lowered our
fiscal 2007 earnings-per-share estimate based on
second-quarter actual results and more rapid decline in military vehicle margins than previously expected, as well as slower ramp-up in firetruck chassis sales," Rogers wrote last month. "We have also lowered our
fiscal 2008 estimate to reflect lower expected
average selling prices on military vehicles."
Notably, he stressed, "military vehicle margins ... began to see contraction during the quarter as competition for MRAP contracts increased."
Rogers has a neutral rating on Spartan's stock. His firm makes a market in the company's securities.
Meanwhile, another Force Protection partner -- giant
, which is helping Force Protection produce its flagship Cougar MRAP vehicle -- saw its stock hit a record high after reporting strength across its diverse business lines.
To General Dynamics, a big-name supplier of all sorts of vehicles, MRAP represents simply one of many opportunities.
"From our perspective, it is not something we super-heat here," CEO Nicholas Chabraja explained during last month's quarterly conference call. "For us, it is a handsome adjacent market. ... We'll take it as we get it."
Since then, General Dynamics has gone on to snag a big MRAP order without any help from Force Protection. The company will soon be supplying the U.S. with 600 of its own RG-31 vehicles -- a competitor to the Cougar -- under a $339 million contract.
Meanwhile, Force Protection is starting to look downright desperate.
, a publication focused on the Capitol, captured that sense of urgency in an article published in its "Business & Lobbying" section last month.
In that story, entitled "Firm Guards Niche in Armored Vehicles,"
reported that Force Protection hopes to start licensing its vehicle designs out to other manufacturers instead of competing with them directly. In fact,
stated, Force Protection has been "pressing its case with lawmakers and Pentagon officials" already.
the Pentagon jump-started getting more protection to soldiers, but now it is time to focus on one design -- and we're hopeful it's going to be our design," Michael Aldrich, Force Protection's vice president of marketing and government relations, told
last month. "Our concern is that everything is being lumped together under one program called MRAP, but they are all different vehicles which are inefficiently managed.
"They have been tested against a common set of standards, and that is why they are being fielded," Aldrich continued. "But they have not been exposed to the real field."
Despite Force Protection's proven success in the field,
( NAVZ) -- once viewed as an unlikely competitor -- has secured two large vehicle orders in recent months, surpassing Force Protection in the fierce MRAP race. Force Protection shareholders had expected their own company to easily maintain that leadership position instead.
Of course, some Force Protection bulls still express deep faith in the company. When Navistar overtook Force Protection with its latest order, in fact, C.E. Unterberg Towbin analyst James McIlree quickly re-established Force Protection as his favorite stock pick.
"We think the selloff in the shares ... on the heels of another large MRAP order to Navistar is overdone," wrote McIlree, whose firm has a buy recommendation and a $32 price target on Force Protection shares and has investment banking ties to the company. "The stock is down 45% from its high and trading at multiples we consider an extraordinary entry point. ... In our opinion, the story remains intact."