Earlier this month, I took a close look at tiny defense contractor Force Protection (Nasdaq: FRPT ) , and shared with you a few thoughts on its strengths, weaknesses, opportunities, and threats -- including Force's recent weakness in free cash flow production, and the fears of a Pentagon crackdown on contractors. I also mentioned why the stock might be a buy: Force sells for an attractive P/S ratio relative to defense contractors like Lockheed Martin (NYSE: LMT ) and Boeing (NYSE: BA ) , even though they all face the same risks from reduced funding.
But apparently, I missed a few reasons to buy Force Protection. 1,946, to be exact.
1,946 Cougars on the wall, 1,946 Cougars. Take one down, pass it around ...
Fortunately for shareholders, Force took some time this week to remind us of perhaps the single best reason to own it: The large number of Cougar armored trucks it has already built. Those trucks are already in the field, require regular maintenance, and occasionally need profitable upgrades. Seriously profitable upgrades.
On Monday, Force announced that the Pentagon has hired it to install new "seat survivability upgrade kits" in its Cougars. The kits cost only about $33,000 a pop. But when you multiply that modest sum by the vast number of Cougars in the field, it adds up to $64.1 million in new revenue for Force.
Even better news -- for Force shareholders, at least -- is where the upgrade work will be done. With U.S. "combat forces" now officially out of Iraq, investors have been worrying that Force might have outlived its usefulness. But if you read between the lines, it seems the majority of the Cougars that Force originally built for use in Iraq, are now stationed in Afghanistan. We know this because, according to the press release the Cougar upgrades "will be performed primarily in Afghanistan."
Seems, despite what we might have been led to believe, Oshkosh and its M-ATV contract are not replacing existing MRAPs in the rough terrain of the 'Ghan. Instead, they're only supplementing Force's larger armored trucks. And it seems likely, therefore ... that Force will continue earning maintenance revenues -- and every so often, a $64 million windfall.
It also seems that CEO Michael Moody's master plan to evolve Force from a run-of-the-mill armored truckmaker -- competing with, and generally losing to, bigger, stronger players like Navistar (NYSE: NAV ) , Oshkosh (NYSE: OSK ) , and General Dynamics (NYSE: GD ) -- is working out just fine. Better, even, than I had hoped.