OKLAHOMA CITY -- Force Protection ( FRPT - Get Report) is on a roll lately. Shares have risen almost 50% over the last month as the Ladson, S.C., manufacturer vies for lucrative orders under the government's armored vehicle contract. But given the competition from deep-pocketed rivals such as Navistar ( NAVZ and British-based BAE Systems, even Force Protection fans have been bracing for a wild ride. "Based on the fluidity of the Mine-Resistant Ambush-Protected vehicle program, we continue to believe that FRPT will be one of the most volatile stocks in the defense industry over the next several quarters," Friedman Billings Ramsey analyst Patrick McCarthy cautioned earlier this month in raising his rating to outperform from market perform. "We expect the news flow to be significantly positive in the near-term, however." Indeed, even bad news has been positive for Force Protection and its foes of late. They surmounted a potential roadblock in Congress late last week. On the face of it, the news was bad for the armored car makers. Sen. Joseph Biden -- one of MRAP's biggest supporters -- withdrew his request for $23.6 billion in additional funding for 23,000 MRAP vehicles like those made by Force Protection. Biden dropped the request after fellow senators questioned whether manufacturers could even produce so many vehicles. But tellingly, the senators opposing Biden's measure also made clear they would support a request for additional MRAP funds when they deem them necessary.
"I have never known the senator from Hawaii or the senator from Alaska, when they gave their word, to do anything ... but that," Biden said, according to a report published by Collins Stewart analyst James McIlree on Tuesday. "That is good enough for me. I am happy to withdraw the amendment." McIlree, who rates the stock buy and fixes a $32 price target on Force Protection, said "the exchange -- rather than throwing doubt on MRAP funding -- confirms the support the program has." Meanwhile, Stanford Group analyst Josephine Millward stuck with her cautious stance on Force Protection shares, which recently traded around $24. Millward has predicted Congress will adopt a smaller, but still generous, funding package than Biden's proposal. "Pentagon's official MRAP requirement is currently at 15,400 units, which means $16.3 billion for 8,900 vehicles in FY08," calculated Millward, who does not formally cover the stocks in this group. "This is based on the Department of Defense's assessment on what the military needs as well as industrial production capacity." Meanwhile, Millward has already started looking ahead to MRAP II. When seeking bids for the sequel to the original MRAP program, the government asked defense contractors to supply vehicles that could survive not only ordinary roadside bombs but also more powerful "explosively formed penetrators" as well. Six companies, most of them current MRAP players, responded with proposals by last week's deadline.
But one newcomer stands out. Ceradyne ( CRDN and Oshkosh ( OSK - Get Report) have teamed up to create a new MRAP vehicle known as the Bull that is considered uniquely capable of withstanding EFPs. Millward, for one, believes that the Bull has a fair chance of joining the current MRAP fleet as a result. "In our view, the military will unlikely narrow down MRAP suppliers to one or two and will probably select four or five vendors for MRAP II," Millward wrote last week. "Pentagon plans to increase its monthly production goal from the current 900-1,300 units per month and will need as many qualified vendors as they can get. "This would be negative for Force Protection, which expects to win higher market share on MRAP II than the 30% of awards it received for MRAP I" this fiscal year. Meanwhile, Navistar is building on recent gains of its own. "The company aims to ramp to 500 - and possible as many as 600 - MRAP vehicles per month by February 2008," Bear Stearns analyst Peter Nesvold wrote after attending the company's investor day this week. All told, "MRAP is expected to account for roughly 50% of NAVZ's military business near term." Ultimately, Nesvold feels that Navistar's military opportunities extend far beyond the lucrative MRAP program. But with Navistar still preparing long-overdue financial statements, Nesvold remains cautious. He has a peer-perform rating on Navistar's stock. His firm makes a market in the company's securities.
Force Protection fans see big orders coming the company's way nonetheless. Thomas Weisel Partners analyst David Gremmels on Tuesday predicted that Force Protection would field a contract for more than 700 MRAPs as early as this week. He expects the company to score orders for a total of 1,500 to 2,000 MRAPs in the end. Gremmels has an overweight rating and a $22 price target on Force Protection's stock. Although the shares have already exceeded this price, he feels that positive news flow could push them even higher in the near term. His firm makes a market in the company's securities. McIlree remains optimistic as well. "We think there are orders coming soon and FRPT will be a recipient," he wrote. Indeed, "the company is in an excellent position to garner further MRAP awards."