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Varchild2008 (84.49)

Why Buy (FRPT) today?



August 10, 2009 – Comments (3) | RELATED TICKERS: FRPT.DL

*Warning*  I am long the stock at 250 shares.  I will be fair though.

FRPT's C.E.O. has repeatedly said that their Q2 earnings is expected to be a bit low, mostly due to the high expense they took to go after the Billion + contract.  They missed the contract....

So, when they report earnings you almost have to take out their huge expense in their Radio Advertisements + Bidding War + etc. in order to get a real clue about Q2.  So, don't expect much of anything regarding Q2. 

This is really about their existing products / programs that continually receive contracts as Afghanistan activity continues to ramp up. 
22,000 Troops will be added to the Army's force by 2012.

It's safe to speculate that if we are adding 22,000 to the Army's numbers by 2012 in Afghanistan then (FRPT) along with defense stocks in general that sell to the Army or perform Maintenance/Support for the Army on vehicles/equipment/weapons/armor are going to benefit in the years to come.

So, with all that said.... Here's a simple set of arithmetic on FRPT's stock price at $5.12.

Let's assume FRPT deserves no better than an increase to a 14 P/E.  That increase won't happen overnight, but let's assume sometime in 2010 / 2011 it gets to a 14 P/E and hovers around there for awhile... 

What does a 14 P/E mean for FRPT in purely 2009 EPS numbers?

Well.. Given the 11 cent Q1 earnings +  7 cent consensus Q2 + 16 cent consensus expected Q3 earnings + last year's 17 cent Q4 =  an eps of 51 cents.

I'm going to go ahead and shave off a few cents on Q2 with an expected miss by 3 cents a share.

Therefore....2009 eps expectations would be 48 cents.

P/E 14 against  48 cents a share  =   $6.72.

Q:  Why 14 P/E the stock?
A:  Aerospace and Defense Sector's Average P/E  is 13.6 (add in the future 2010 growth and it's definitely a 14 P/E average)

So...even with ridiculously pessimistic view on 2009 earnings + not bothering to factor in future growth the stock price of $5.12  is more than a $1.50  oversold.

Go ahead though.... Do the math with a cheaper P/E.   Try 12..even.... You'll still see the stock at a $6 handle.

3 Comments – Post Your Own

#1) On August 10, 2009 at 11:19 AM, Schmacko (91.15) wrote:

Not getting the MRAP contract was a huge blow to Force Protection.  I think this is a riskier company than presented here.   They'll continue to pick up smaller contracts like the one they signed with the marines 2 weeks ago, but 56M is no 1.06B.  They really have nothing else lined up on that scale.  If you like this comapny based on it's MRAP program, I think you'd be better to go with General Dynamics.  Force Protection makes the MRAPs through a subsidiary called Force Dynamics, which is jointly owned/controlled by GD.  GD also is a much more diversified defense contractor than Force Protection, so isn't completely reliant on getting 1-2 big contracts.  They also pay a dividend. 

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#2) On August 10, 2009 at 3:05 PM, Varchild2008 (84.49) wrote:

OSK is priced at $25.79.

That's a gigantic leap from the $6.72  pricing target I have for the (FRPT) in my blog post.

MRAP program?  NOPE...  I bought into (FRPT) because of their General Dynamics partnership + Positive Cash Flow.

They have over 100 million, I believe, on their balance sheet.
This is a healthy company that has lots of cash to buy and expand the scope of their business offerings.

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#3) On August 10, 2009 at 4:27 PM, Varchild2008 (84.49) wrote:

Well.... Now that Q2's expectedly horrid earnings report is out of the way... We can look forward to what usually is a good earnings report in Q3.  As seen in 2008, it was Q3 where FRPT made their biggest earnings.

FRPT has already landed Buffalo and Suspension Kit contracts and they will continue to expand their support programs for existing, already sold vehicles in Kuwait. 

The only thing disappointing out of Q2 is that I don't have any cash to buy on Tomorrow's dip.

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