Force Protection Inc. (Nasdaq: FRPT)
Force Protection Inc. (FRPT) is a provider of blast- and ballistic-protected products used to support armed forces and security personnel in harm’s way. The Company designs, manufactures, tests, delivers and supports its blast- and ballistic-protected products. Its specialty vehicles are designed to protect their occupants from landmines, hostile fire and improvised explosive devices. The Company is one of the primary providers of vehicles for the U.S. military’s Mine Resistant Ambush Protected, or MRAP, vehicle program. FRPT also provides Cougar Mastiff, Cougar Ridgback, Cougar Wolfhound, and Buffalo mine-protected vehicles to the United Kingdom Ministry of Defence.
The Company offers an external ballistic protection module identified as Force Armor that provides additional protection from explosively formed penetrators. During 2008, FRPT delivered 2,067 vehicles under the MRAP and other blast- and ballistic-protected vehicle programs.
|
Share Statistics 10-Nov-09 |
|
2007 |
2008 |
%Chg |
Q3 2008 |
Q3 2009 |
% Chg |
|
| Symbol |
FRPT |
Revenue, Mn |
890.7 |
1,326 |
48.9% |
343.3 |
316.2 |
-7.89% |
| Current price |
$4.90 |
Gross marg. |
11.7% |
13.3% |
1.6% |
18.6% |
8.4% |
-10.2% |
| 52wk Range: |
$2.31- $10.03 |
Oper. margin |
0.6% |
5.2% |
4.6% |
9.2% |
1.0% |
-8.2% |
| Avg Vol (3m): |
1,032,060 |
Net margin |
0.9% |
3.5% |
2.6% |
5.8% |
1.0% |
-4.8% |
| Market Cap. |
339.8M |
|
|
|
|
|
|
|
| Dil. Shares Outst. |
69.91M |
EPS, $ |
0.11 |
0.69 |
527.3% |
0.29 |
0.05 |
-82.76% |
Source: Reuters.com, SEC Filings.
Financial Summary
In the third quarter of 2009, the Company reported net sales of $316.2 million versus $343.3 million in the third quarter of 2008. Net sales in the third quarter of 2008 included $106.9 million of pass-through sales by General Dynamics Land Systems in connection with vehicle deliveries under the Company’s MRAP Competitive Contract. There were no vehicle pass-through sales by General Dynamics in the third quarter of 2009. FRPT noted that excluding pass-through vehicle sales, the third quarter of 2009 marked a record quarterly revenue performance for the Company. This performance was driven by record shipments of Buffalo vehicles in the quarter, shipments of Wolfhound vehicles and strength in the Company’s Total Life Cycle Support business, which includes supplying and installing Independent Suspension System modernization and ForceArmor™ kits.
The Company’s net income for the third quarter 2009 was $3.2 million, or $0.05 per share, which includes a one-time pre-tax charge of $19.3 million, or $12.9 million after-tax, $0.19 per share, compared to net income of $19.9 million, or $0.29 per share, for the third quarter of 2008.
The Company’s cash and marketable securities balance rose to $121.9 million as of September 30, 2009, from $111.0 million as of December 31, 2008. Operating activity provide net cash of $21.9 million in the first nine months of 2009 compared with ($1.3) million in the first nine months of 2008. Inventories as of September 30, 2009, increased to $113.8 million from $88.5 million as of December 31, 2008, as a result of higher finished goods comprised primarily of Wolfhound vehicles, ISS kits and increased inventory to support the growth in the FRPT’s Total Life Cycle Support business.
The Company anticipates a relatively soft level of operating profit in 2009 due to the timing of vehicle and other product shipments and costs related to the M-ATV competition. However, it expects a stronger second half and full year performance, due to expected life cycle support business.
Analyst Consensus
Analysts on average expected the Company to earn 12 cents a share for the third quarter of 2009, before items, on revenue of $211.8 million, according to Thomson Reuters. Shares of the Company were up 4% at $5.32 in after-market trade. The Company closed at $5.12 November 9 on Nasdaq.
|
|
# of Estimates |
Mean |
High |
Low |
1 Year |
|
SALES (in millions) |
|||||
|
Quarter Ending Dec-09 |
4 |
222.74 |
250.70 |
210.00 |
77.81 |
|
Quarter Ending Mar-10 |
2 |
175.20 |
180.41 |
170.00 |
– |
|
Year Ending Dec-09 |
4 |
806.46 |
831.20 |
786.85 |
461.18 |
|
Year Ending Dec-10 |
4 |
675.64 |
730.02 |
630.40 |
– |
|
Earnings (per share) |
|||||
|
Quarter Ending Dec-09 |
4 |
0.18 |
0.25 |
0.11 |
0.03 |
|
Quarter Ending Mar-10 |
2 |
0.10 |
0.13 |
0.08 |
– |
|
Year Ending Dec-09 |
3 |
0.48 |
0.52 |
0.45 |
0.29 |
|
Year Ending Dec-10 |
4 |
0.50 |
0.52 |
0.45 |
– |
|
LT Growth Rate (%) |
2 |
20.00 |
20.00 |
20.00 |
20.00 |
Source: Reuters.com, SEC Filings.
In June, shares of FRPT declined the next days after losing the multibillion-dollar U.S. Army contract to build new off-road terrain vehicles to outfit ground forces in Afghanistan. The Company’s shares shed $4, or nearly 45%, to $5.15 on Nasdaq. In August, the stock plunged 15% after the maker of military vehicles reported a sharply lower second-quarter profit on a decline in revenue. The stock has ranged from $2.31 to $10.03 over the past year.
|
Analyst Detail |
Buy |
Outperform |
Hold |
Underperform |
Sell |
No Opinion |
|
Yesterday |
2 |
2 |
0 |
1 |
0 |
0 |
|
4 weeks ago |
2 |
2 |
0 |
1 |
0 |
0 |
|
2 months ago |
1 |
1 |
2 |
1 |
0 |
0 |
|
3 months ago |
1 |
1 |
2 |
1 |
0 |
0 |
|
Last year |
0 |
0 |
3 |
0 |
0 |
1 |
Source: http://markets.ft.com/tearsheets/analysis.asp?s=frpt
Investment Highlights
The Company’s specialty vehicles, the Cougar and the Buffalo, each have a proven track record in the battlefield. The Company’s newest vehicle, the Cheetah, is designed specifically for reconnaissance, forward command and control and urban operations, and combines state-of-the-art ballistic and blast protection with the mobility of a unique light-armoured vehicle. In addition, in May 2009, the first batch of 300 new armoured Mastiff 2 and Ridgback vehicles developed by the Company have reached Afghanistan and have now been put to work in front line operations. According to the International Committee to Ban Landmines, more than 87 countries have a significant landmine or unexploded ordnance problems, which positions FRPT well to capitalize on global landmine deactivation initiatives.
The collaboration of the Company with the U.S. government started on January 30, 2007, when the Marine Corps Systems Command placed a $67.4 million delivery order for 125 Category I and Category II Cougar vehicles under the MRAP program. In the same year, the Company received an additional order for 1,190 and 881 MRAP vehicles, totaling $481 million and $477 million, respectively. In late June 2009, Force Dynamics, a joint venture between FRPT and General Dynamics Corp., was among three companies to lose to Oshkosh Corp. for a $1.06 billion deal to build 2,244 blast resistant, off-road vehicles for forces in Afghanistan. In July, the Company received contracts for both phase 1 and phase 2 installation of specifically redesigned TAK-4 independent suspension kits for 1,317 Cougar MRAPs. The aggregate amount of the award was $77 million.
Mine Resistant Ambush Protected (MRAP) vehicles program started in 2006 when between October and December 2006 the U.S. Navy evaluated nine suppliers for the procurement of MRAP trucks, destined to augment and later replace up-armoured HMMWVs currently operating in Iraq and Afghanistan. FRPT was one of nine vendors authorized under MRAP. The initial joint services program was expected to cost more than US$2 billion. However, given the reduced performance of lightly armoured vehicles in Iraq and Afghanistan, the requirement for MRAP rose to more than 7,700 vehicles, worth an approximate $8.4 billion. Altogether, the Army is looking to purchase up to 23,000 medium-tactical vehicles and trailers over the next five years. The estimated procurement cost could reach $10 billion plus support and services.
In September, FRPT received a modification to contract W56HZV-08-C-0028 from the United States Army Tank- Automotive and Armaments Command (TACOM) ordering 48 Buffalo Mine Protected Clearance Vehicles (MPCV), with a value of approximately $52.8 million. Work on the vehicles is expected to be complete before September of 2010. The Company noted that it continues to expect additional orders under this program and to make total deliveries of more than 100 Buffalos during fiscal 2010. The award was made pursuant to a contract between FRPT and the U.S. TACOM dated November 2, 2007, for the provision of vehicles.
This fall, Force Protection Europe Ltd., a wholly owned subsidiary of FRPT, debuted a new class of light protected patrol vehicle, the Ocelot, at the Defense Systems and Equipment International exhibition in London. The Ocelot was designed specifically to meet the requirements for the UK’s Light Protected Patrol Vehicle (LPPV) program. Based on a modular design with a core automotive armored spine or “skateboard” the vehicle has a composite special-to-role pod. These roles include patrol and fire support or protected logistics vehicle, while the pod can easily be changed in the field as the need requires. Overall, Ocelot exceeds the required mine protection level set for the UK MoD Light Protected Patrol Vehicle.
FRPT’s vehicle deliveries have decreased in the last several quarters while non-vehicle deliveries of spares, modernization, field services and training have risen. Based upon its changing mix of business and related infrastructure requirements, the Company had determined to initiate a significant program of operational realignment and overhead reductions. The Company expects to substantially complete this program in the first half of 2010, and to create an annualized run rate for cost savings of at least $40 million. It will take a $2 million charge for severance payments as it downsizes its operations in order to align the FRPT’s cost structure to current and planned vehicle production and to improve operational efficiencies in the area of Total Life Cycle Support. Included in the Company’s cost reduction program is a net reduction of approximately 10% of its current workforce of 1,200 employees and contractors. Although FRPT will continue building vehicles, the Company will refocus its efforts toward sustainment and supply chain management and spares logistics functions.
The U.S. military budget is almost as much as the rest of the world’s defense spending combined. For 2009, the United States military base budget rose to $515.4 billion, an increase of 5.7% over 2008. From that, the military procurement of the United States Department of Defense for fiscal year 2009 is budgeted at $104.2 billion or a 5.2% increase over the 2008 budget. An increase in military forces deploying to Afghanistan will necessitate modifications to the vehicles and increased sustainment and maintenance requirements. FRPT looks to increase annual sales of vehicle repair and maintenance as President Obama has committed to expanding operations in the country. Over five years, the Company believes the additional work could add up to $1 billion in incremental business.
Technical Analysis
Source: http://stockcharts.com/h-sc/ui
FRPT is trading above its 13-day moving average. This is generally considered to an indication of a bullish trend.
The MACD for the Company currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9-day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.
FRPT’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility. Additionally, FRPT is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.
Comparative Analysis
With the stock sitting at less than 8.5 times its earnings, the market appears to be taking a very diffuse view of the Company’s prospects. In addition, FRPT’s shares sell for 0.4 times annual sales – a valuation lower than almost any defense contractor, and essentially on par with Textron. The Company is traded with discount to peer forward P/E and P/S multiples.
Despite losing practically every major contest in last months, the Company is cash flow positive and still managed to book $371 million in sales so far this year. As of June 30, FRPT generated $13 million of free cash flow and was sitting on a $122 million cash pile. The Company has a strong international sales pipeline, solid service and replacement contracts, and zero debt on the balance sheet. Thus, with a good base business in place, the Company’s long-term outlook is stable.
|
Company Name |
Ticker |
Price per |
Mrkt. Cap. |
P/E |
P/S |
||
|
Nov-10-2009 |
symbol |
Share, $ |
$ Mn |
2009 |
2010 |
2009 |
2010 |
|
Navistar International Corp. |
NAV |
35.46 |
2,500 |
15.48 |
14.84 |
0.22 |
0.23 |
|
Oshkosh Corp. |
OSK |
37.70 |
2,810 |
n/m |
10.47 |
0.53 |
0.35 |
|
Spartan Motors Inc. |
SPAR |
5.26 |
173.3 |
12.23 |
18.14 |
0.42 |
0.51 |
|
General Dynamics Corp. |
GD |
66.40 |
25,620 |
10.73 |
10.18 |
0.79 |
0.76 |
|
AeroVironment Inc. |
AVAV |
28.33 |
609 |
25.75 |
25.99 |
2.50 |
2.10 |
|
Textron Inc. |
TXT |
28.36 |
5,330 |
57.88 |
33.76 |
0.51 |
0.51 |
|
Raytheon Company |
RTN |
47.91 |
18,360.0 |
9.94 |
9.68 |
0.74 |
0.70 |
|
Median |
|
|
|
13.86 |
14.84 |
0.53 |
0.51 |
|
|
|
|
|
|
|
|
|
|
Force Protection Inc. |
FRPT |
4.90 |
339.8 |
10.21 |
9.80 |
0.42 |
0.50 |
Source: Thomson Financial, Yahoo! Finance, Analyst estimates.
Insider Trading Activity
Net Share Purchase Activity
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Data provided by Thomson Financial |
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