It's nice to get one right once in a while. It was only eight days back when I suggested that investors pay close attention to ceramic experts Ceradyne (NASDAQ:CRDN). I figured that a new round of body-armor contracts would be on the way shortly, providing a new source of revenue and earnings that were, as of that time, probably not factored into Ceradyne's earnings guidance or, in my opinion, into the stock price.
Well, today word came of a $70 million order for side-plate armor, an amount that's equal to 20% of Ceradyne's trailing-12-month revenue, or 15% of the updated 2006 revenue guidance of $440 million-$465 million that management gave in October 2005. But as I indicated in the article linked above, it appears that major side-armor contracts like this one are not part of the guidance -- at least not contracts of this magnitude.
Another thing to consider: This isn't money that's going to take years to arrive at Ceradyne's front door. It's an order that's expected to be delivered by the end of the second quarter of 2006.
Finally, Ceradyne CEO Joel Moskowitz indicated that this order is something of an urgent, stop-gap measure. It's only the beginning of the side-armor contracting. The contract for the meat of the side-armor business has only just opened for presolicitation, and from what I read last week, the military was interested in up to nearly a million sets. Ceradyne believes the government will likely start giving out orders against that five-year contract later in 2006, and if history is any guide, Ceradyne stands to get a significant portion of those.
The greater lesson here is the potential rewards for paying attention to the obvious. To see the future, sometimes it really is just as easy as opening your eyes. I was tipped off to this probable chain of events by nothing more obscure than articles on the front page of the New York Times' (NYSE:NYT) website and National Public Radio broadcasts.
I continue to like Ceradyne over diversified defense contractors, such as Armor Holdings (NYSE:AH), General Dynamics (NYSE:GD), Lockheed Martin (NYSE:LMT), and Raytheon (NYSE:RTN) -- not only because of its smaller size, but because Ceradyne has applications in many other automotive and industrial fields. Perhaps best, it doesn't get nearly the following of many of Wall Street's hot tamales, though it's been growing like a weed, with a stock price to match.
For related Foolishness:
- Should you bulk up on body armor?
- Early last month, Ceradyne put the market's knickers in a twist.
- What's up with Ceradyne's wild ride?
- Still, we don't know all of what Ceradyne is up to.
- See Ceradyne's latest quarter, by the numbers.
Seth Jayson tried to get his colleagues at Motley Fool Hidden Gems to take a hard look at Ceradyne when it was back at $20 a share (sigh), but he knows they've got their own multibaggers to find. Check out other small, underfollowed growers with a free trial .
Seth Jayson likes being right but still thinks you should make your stock buys assuming that you could be wrong. At the time of publication, he had shares of Ceradyne, but no position in any other firm mentioned. View his stock holdings and Fool profile here . Fool rules are here .
