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Who Will Replace the Beretta M9 as the Official U.S. Army Sidearm? 20 Contenders Become 3

By Rich Smith - Jun 8, 2016 at 8:00AM

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The good news: Two publicly traded companies are still in the running.


. . . for now. Image Source: Beretta

For nearly two years now, the U.S. Army has been trying to replace its Beretta M9 service weapon -- and believe it or not, the Army is finally starting to make some progress. Slow progress, to be sure, but progress nonetheless.

Last week, the military hardware specialists at IHS Jane's reported that out of the 20 industry teams previously believed to be interested in selling the Army a new Modular Handgun System (MHS), only a dozen actually submitted bids in response to the Army's official Request for Proposals.

From these, the Army expects to "downselect" just three finalists in August. It will then spend a further nine months evaluating how well the finalists actually produce weapons matching the designs they have submitted. At that point, nearly three years after the process began, the Army thinks it will be ready to pick a winner.

And the winner is ...

Who will that winner be? That's hard to say, because even at this late date, we still don't know precisely who is competing. Janes believes that the 12 competitors who submitted bids include:

  • Beretta, offering its new APX model handgun
  • Czech gunsmith Ceska Zbrojovka offering the CZ P-09
  • FN Herstal and its Five-Seven Mk 2
  • Sig Sauer with the P320
  • Glock, bidding the Glock 17 and Glock 22
  • Smith & Wesson (SWBI 2.12%) and General Dynamics (GD -1.97%), bidding the former's M&P polymer handgun paired with the latter's ammunition

Astute readers will no doubt notice that this list covers only half of the 12 bids supposedly submitted to date. Astute investors, meanwhile, can't fail to have noticed that out of all the companies named so far, only two are publicly traded: Smith & Wesson and General Dynamics.

What it means to investors

From an investor's perspective, therefore, this is a good news/bad news situation. The bad news, of course, is that with the majority of the potential MHS winners being privately owned, the odds seem to disfavor a contract win for the two public companies -- a contract that's said to be worth $580 million, according to Guns.com but valued at closer to $1.2 billion by Congressional critics who include the value of ammunition contracts in their calculations.

The good news, however, is that as far as we can tell, Smith & Wesson and General Dynamics are still in the running. What would it mean for investors if these two companies do beat the odds and secure the MHS contract?

For the much larger General Dynamics, victory on the MHS ammunition contracts would be a nice boost and could even move the needle on the company's $31.4 billion annual revenue stream. The $600 million and change in new ammo revenue would be close to 2% of the top line at the defense giant.

A victory by Smith & Wesson, on the other hand, could be downright transformative. According to S&P Global Market Intelligence data, the company generated about $680 million in revenue over the past four quarters. A new $600 million or so handgun contract from the Army could secure the company's revenue stream for nearly a year.

So if you're planning to bet on seeing the MHS contract produce a bonanza of profits for any company involved, you should be training your sights on Smith & Wesson.

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Stocks Mentioned

Smith & Wesson Brands, Inc. Stock Quote
Smith & Wesson Brands, Inc.
SWBI
$14.00 (2.12%) $0.29
General Dynamics Corporation Stock Quote
General Dynamics Corporation
GD
$213.50 (-1.97%) $-4.28

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