OKLAHOMA CITY -- Force Protection's ( FRPT) chief ally, General Dynamics ( GD), is starting to look more like a formidable foe. Up to now, Force Protection and General Dynamics have worked together as a team to snag big contracts for Mine-Resistant Ambush-Protected vehicles. This week, however, General Dynamics landed a $339 million order for 600 MRAP vehicles on its own. Moreover, that order calls for heavy-duty Category II vehicles -- a class of MRAP vehicles previously dominated by Force Protection's celebrated Cougar. Force Protection's stock plummeted 12% to $16 on Wednesday due to the stunning setback. The shares have lost nearly half of their value this summer as competitive pressures have mounted. "The award is clearly a negative for FRPT, which now faces another Category II competitor ahead of large MRAP orders in 2008," Thomas Weisel Partners analyst David Gremmels admitted on Wednesday. "As a result of this new reality, we are lowering our Cougar market-share assumption for MRAP from 40% to 33% for 2007-2008." Gremmels lowered that same target less than a month ago, when Armor Holdings, a rival now owned by BAE Systems, snagged a surprising MRAP win. Until then, Gremmels had projected that Force Protection's Cougar would represent at least half of all vehicles ordered under the multibillion-dollar MRAP program.
"Force Protection's Cougar vehicle dominates the Category II MRAP vehicle market, being the only contractor awarded volume production since testing wrapped up at Aberdeen," Gremmels wrote at the time. "Although our model has lost some of its conservatism by the addition of an unexpected contender to the production competition, we continue to believe it is achievable." While now backing away from that call, Gremmels continues to maintain his overweight rating on Force Protection's shares. He views the stock as especially attractive following the latest selloff. Still, even Gremmels admits that the rules of the MRAP competition -- which once seemed to favor Force Protection -- have clearly changed. "We believe the MRAP acquisition strategy has evolved as the Department of Defense struggles under intense political pressure to get as many vehicles fielded as soon as possible," wrote Gremmels, whose firm makes a market in Force Protection's securities. "This has resulted in the original intent of having industry focus on two or three of the best designs transforming into a free-for-all, with orders seemingly going to all players that passed testing at Aberdeen and can make a case for production capacity." As a relatively young company with a spotted production record, Force Protection could further lose its competitive edge. Indeed, rival Navistar ( NAVZ.PK) -- an established player with a long history of mass producing commercial vehicles -- has already overtaken Force Protection as this year's biggest MRAP winner so far. Navistar's stock, up 2.4% to $61.40 on Wednesday and hovering in the upper end of its 52-week range, has handily outperformed Force Protection's in a reflection of the changing landscape.