At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
What do you do when one of the best investors on the planet advises you to buy a beaten-up company that seems incapable of winning a major contract in a no-growth, government-dependent industry that's vulnerable to budget cuts? Personally, I listen up. From what I hear, the smart investors over at Benchmark Capital think there's more to the Force Protection (Nasdaq: FRPT) story than meets the eye.

Last week, as shell-shocked investors were longing for a weekend of closed markets when they could at least be certain of not losing money, out came Benchmark and declared that you can make money on Force Protection. Citing recent multimillion-dollar deals to sell Cougar and Buffalo armored vehicles to the military, and predicting there are more of the same in the pipeline, Benchmark says it's likely Force will "exceed consensus expectations this year."

Plus, the company's work integrating Oshkosh (NYSE: OSK) suspension systems into its own MRAPs offers an additional revenue stream. In sum, Benchmark believes that after a 20% postearnings sell-off, Force now presents investors with an "attractive risk/reward" proposition.

But is Benchmark right?

Let's go to the tape
In search of a clue to Benchmark's stock-picking skill, we turn to Motley Fool CAPS, where we've been tracking this analyst's performance for close to four years. What we find there may surprise you.

In a world where most analysts struggle to get even 50% of their picks right, Benchmark boasts a record of 60% accuracy on its recommendations and -- better sit down for this -- 100% accuracy in the Aerospace & Defense sector:



Benchmark Said

CAPS Rating
(out of 5)

Benchmark's Pick
Beating S&P by

Cubic Corp.



6 points




2 points

American Science & Engineering



>1 point

Now, 100% accuracy is obviously an anomaly. No one gets it all right, all the time. Eventually, I'm certain Benchmark will make a blunder, or even two or three. But not with Force Protection. Fools, Benchmark's right on the money with this one.

Buy the numbers
Why do I say that? After all, at first glance, Force Protection doesn't look like a screaming bargain. Hobbled by a truly miserable fiscal first quarter, trailing earnings at the company have sunk to just $23 million, while free cash flow has slowed to a trickle, just $14 million. This leaves the stock trading at 23 times free cash flow, and 14 times earnings. Extremely un-remarkable numbers.

But you don't have to dig very deep to uncover the hidden value in this company. With nearly half its market cap in cash, Benchmark points out that Force sells for a mere "3.4x FY10 EV/EBITDA, below the sector average of 9x." Benchmark suggests that despite Force's troubled history of winning (i.e. its remarkable skill at losing) major defense contracts, the stock could easily be worth six times EBITDA.

Granted, this seems somewhat an exercise in guesswork. Valuations in the defense space run all over the map -- from Oshkosh, which at an enterprise value/EBITDA of 3.3 mirrors Force's own undervaluation; to Force's historical partner General Dynamics (NYSE: GD), which sells for 6.4 times EBITDA; to Navistar (NYSE: NAV) and Textron (NYSE: TXT) at the other end of the scale, sporting EV/EBITDAs in the low-to-mid-double digits. With such a wide range of price tags in the defense sector, saying that the "sector average is 9x" may be accurate, but it's not particularly helpful.

Foolish takeaway
Instead of comparing Force to the industry average,  I'd urge investors to focus on just two numbers specific to Force:

  • Fully 50% of the company's market cap is made up of cash. With more cash pouring in the door every day, and Benchmark suggesting that the rate of cash influx will actually increase this year, the valuation proposition here seems obvious.
  • The handful of analysts who follow the company, on average, predict profits at Force will grow at an astounding 43% per year over the next five years, fast enough to make even a 23 price-to-free cash flow ratio look cheap.

Now all Force needs to do is erase the memory of a miserable Q1, and prove the analysts (and Benchmark, and me) correct.

General Dynamics is a Motley Fool Inside Value selection. American Science & Engineering and AeroVironment are Motley Fool Rule Breakers picks. Cubic is a Motley Fool Stock Advisor recommendation. 

Fool contributor Rich Smith owns shares of AeroVironment. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 451 out of more than 160,000 members. The Motley Fool has a disclosure policy.