For Force Protection ( FRPT), the road to riches seems filled with speed bumps. A new government contract has halted a rally in the company's shares. Late last week, with its stock already fueled by hope, Force Protection emerged as one of three suppliers to win fresh orders under the multibillion-dollar Mine-Resistant Ambush-Protected vehicle program. Instead of re-establishing its dominance in the MRAP market, however, Force Protection saw rival Navistar ( NAVZ) win the biggest share of the contract. Force Protection fielded a $377 million order for 800 MRAP vehicles. But Navistar got a $509 million contract calling for 1,000 trucks. Meanwhile, British-based BAE remained in the game with a $323 million order for 600 vehicles. The Marine Corps expects all of those vehicles to be delivered by April and plans to place even bigger MRAP orders by year's end. Force Protection will supply one-third of the vehicles ordered under the latest round of MRAP awards. But gains by rivals could undercut some bullish scenarios being elaborated by the company's fans. "We believe FRPT could receive more than half of 1,500 MRAP vehicles expected to be awarded in the near-term," Dougherty analyst Joe Maxa wrote earlier this month. Moreover, "we believe the company is well positioned to increase its MRAP market share and could account for 40%-plus of the 7,000 MRAP expected orders" through the end of this year.
Maxa presented his upbeat forecast less than two weeks ago when he raised his price target on Force Protection's stock from $25 to $30 a share. But the stock, which fetched nearly $25 at the time of that report after a monthlong rally that took it up some 50%, has since lost considerable ground. It slipped 7% to $18 on Tuesday. Maxa's firm makes a market in Force Protection's securities. To be fair, Force Protection did manage to secure orders for 800 vehicles -- as Maxa had predicted -- and can therefore move ahead with its aggressive production schedule. But the company clearly fell short of expanding its market share. Interestingly, some analysts are now urging investors to focus more on Force Protection's production rate and less on its market share while promising market gains to come. "Our conversations with senior Marine Corps personnel have implied that FRPT is first in line for orders and that the orders will match whatever the company can produce," SunTrust Robinson Humphrey analyst Chris Donaghey stressed on Friday. So "if FRPT could have produced 1,000 vehicles in March and April, it would have received orders for 1,000 vehicles." Meanwhile, Donaghey added, "despite current market share of 31%, FRPT appears well positioned to capture a substantial percentage of the December orders expected to total 6,500 vehicles.
Indeed, we believe an order for 3,000 to 3,500 vehicles or more could be possible."
Donaghey has a buy recommendation and a $36 price target on Force Protection's stock. His firm has investment banking ties to the company. When issuing his bullish note last week, Donaghey expressed full confidence that Force Protection could ramp up its production and position itself for much larger orders going forward. By late spring, in fact, Donaghey sees the company churning out some 500 MRAP vehicles per month. But Stephens analyst Tim Quillin has his doubts. Quillin pegs Force Protection's future monthly production rate at just 300 vehicles instead. He sees the company's market share actually shrinking -- to less than 25% -- as well. A rare Force Protection bear, Quillin began urging investors to sell the company's stock just days before its recent plunge. The shares have lost roughly 15% of their value since then. But Quillin, for one, still sees plenty of downside left. Ultimately, he feels that the stock could fall to $14 a share -- or even lower -- over the course of the next year. A "great truck does not equal great stock," declared Quillin, whose firm hopes to secure investment banking business from the company. "We would sell/short shares of Force Protection, as we believe it is priced for a near best-case scenario."