FRPT up 31% Force Protection's Stock Surge
Evelyn M. Rusli, 12.14.07, 3:15 PM ET
Faced with mounting criticism, Force Protection went on the offensive Friday. In a rare statement, the armored vehicle maker's Chief Executive Officer, Gordon McGilton, defended the firm on its website.
In an attempt to "dispel unfounded rumors," McGilton said the company's financial standing remains robust. "The Company's current cash position is strong with over $60 million in liquid assets, virtually no debt, and a significant capacity to access debt capital as necessary." Force Protection (nasdaq: FRPT - news - people ) has been hit hard in recent months, amid growing concern that competition will rise and military orders will decrease. (See: "Force Protection Pummeled." )
McGilton's message greatly comforted investors, or sent short sellers scrambling for cover, as shares of Force Protection climbed 31.0%, or $1.63, to $6.89, in Friday afternoon trading.
Analysts used to be quite bullish on Force Protection, a noted leader in the armored vehicles market. The company's line of trucks, which features a special v-shaped hull, has performed extraordinarily well in combat operations in Iraq and Afghanistan. However, after reaching an all-time high in May, at $31.16, the stock has crashed into the single-digit territory. Force Protection is perceived by many on Wall Street as too reliant on the U.S. military for business.
Earlier this week, an Iraq commander, Gen. Raymond Odierno told USA Today that the Pentagon was thinking about cutting down its Mine Resistant Ambush Protected (MRAP) vehicle orders. Furthermore, on November 30, the stock fell 28%, amid reports that the Marine Corps was ready to slash its MRAP purchase goals for 2007 by a third, to 2,400 vehicles. With competitors nipping at its heals and fears of cuts in future contracts, Force Protection's future seems less certain. (See: "Marines Recruit Force Protection." )
However, despite the wave of skepticism, McGilton stressed his confidence in the company's outlook. On Friday, he reminded investors that the military still sees armored vehicles as a priority in defense spending. "Not only is this the most important program in the United States Department of Defense, it is a program that our vehicles helped create," he said. He said that the MRAP vehicle program was just in its infancy. McGilton also told investors that its a misinterpretation to see Force Protection as dependent on one customer.
"Some have also said that Force Protection is too dependent on one customer, but let's take a closer look at that 'one customer,'" he said. "Within the DoD, we are servicing all of the individual services with MRAPs and the joint EOD Rapid Response vehicle; the Army Corps of Engineers is the principal consumer of Buffalo MPCVs, but the Marine Corps now owns several dozen as well." McGilton said he remains very optimistic on the company's future deliveries to the United Kingdom, Iraq and Canada. (See: "Force Protection Goes On The Offensive." )
A few of Force Protection's rivals were down on Friday, including General Dynamics (nyse: GD - news - people ) which fell 0.3%, or 25 cents, to $92.51, while Ceradyne (nasdaq: CRDN - news - people ) was down 3.8%, or $1.78, to $46.29, in afternoon trading.
The surge comes only days after a major decline. On Wednesday, the stock declined more than 25%, as the investment community grew increasingly cautious on Force Protection. On that day, a Stanford Research analyst initiated coverage on the stock with a "sell" rating.
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