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Introducing the U.S. Army's next top Humvee. Image source: Oshkosh.

This week was a great week to be a shareholder of Oshkosh (NYSE:OSK).

On Tuesday, the U.S. Pentagon awarded the company formerly known as Oshkosh Truck a truck-making contract that could be worth billions of dollars over the years to come. Specifically, the Pentagon picked Oshkosh to build it a fleet of Joint Light Tactical Vehicles, or JLTVs, the new armored trucks that will replace the Army's venerable Humvees.

Yes, indeedy, folks. After eight long years of hemming and hawing, the Army has finally decided on the final specs for its Humvee replacement vehicle. Oshkosh's new four-wheeled JLTV can be configured as a two-seat utility vehicle, a four-seat general-purpose armored truck, and a four-seat armed vehicle, the "Close Combat Weapons Carrier." Each variant can also tow a companion trailer.

Oshkosh promises that all of its JLTVs will feature:

  • Speeds 70% faster than Oshkosh's own M-ATV off-road MRAP.
  • The underbody protection of an MRAP-class vehicle.
  • The off-road mobility of a Baja racer.
  • The ballistic protection of a light tank.

That's a lot of truck
Oshkosh will be building a lot of these trucks. As detailed in its press release, the company says the U.S. Army Tank-automotive and Armaments Command has hired Oshkosh to build about 17,000 JLTVs over the next eight years. This contract begins with an initial $114.7 million award but will rapidly expand into a $6.7 billion program to replace a sizable portion of the Pentagon's Humvee fleet with new, all-terrain, light armored trucks.

And that's not all: 17,000 JLTVs won't even come close to the Army's ultimate goal of upgrading its 120,000-strong fleet of Humvees, many of which lack armor protection that's essential in hostile environments. Over time, The Wall Street Journal estimates, the Pentagon will need to buy 55,000 JLTV vehicles to upgrade the Humvee fleet. Extrapolating from the value of the initial contract, that suggests the Army could ultimately pay Oshkosh $21.7 billion for its work on JLTV -- and then pay billions more to maintain, upgrade, and replace these vehicles over time.

G
JLTV contract in hand, Oshkosh stock is ready to motor. Image source: Oshkosh.

Now, what does all of this mean for investors?

What Oshkosh's win means to you
Simply put, this all means that Oshkosh stock has just become a much more attractive stock to own. Granted, the stock had a rough three months last quarter. Granted, too, it's still carrying a heaping helping of debt on its balance sheet. S&P Capital IQ reports a long-term debt load of $860 million -- but $21.7 billion worth of Pentagon cash should make short work of that debt load.

Most important, at a current valuation of just 13 times trailing earnings, but projected to grow those earnings at 15% annually over the next five years, Oshkosh stock already looks cheap according to value investors' standard definition of "P/E divided by growth equals less than 1" -- the PEG ratio.

It could begin to look even cheaper than this, as more and more Humvees get replaced, and Oshkosh's JLTV contract triples in size, as I expect will happen. To put this contract in perspective, the $21.7 billion that JLTV production alone will generate for Oshkosh is 3.5 times the company's entire revenue stream -- from all the products it sells -- over the past year.

As those revenues roll in, enabling efficiencies of production and producing fatter and fatter profit margins, I expect Oshkosh stock to richly reward shareholders in the years to come.

Oskosh Last
Oshkosh stock used to look like an underdog, but with the JLTV contract in hand, it promises to produce big profits for shareholders going forward. Image source: Oshkosh.

Rich Smith does not own shares of, nor is he short, any company named above -- but he's giving serious consideration to buying some Oshkosh. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 260 out of more than 75,000 rated members.

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