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Author: spiritof78 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 459323  
Subject: Re: War ends...then, recession Date: 1/17/2007 2:53 PM
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From an investing perspective I've been looking at companies who deal with rebuilding components on military equipment. One of the big problems though is that with many of these companies military revenue makes up less than 15% of their bottom line.

The equipment that is being worn out is right now in a "soldier on" position with some caveats. A broken tank is essentially replaced with a tank from the rear belonging to a different unit. When we finally reset and everyone is back at home base using their own equipment there is going to be a huge need for more purchases.

Additionally alot of these companies are operating at 100% capacity already and have significant backlogs. For example the depots where the Bradley Fighting Vehicle is refit after a tour in the desert is operating 24hrs a day, 7 days a week. Lots of additional hires, the unclassified estimate is another 3 years and growing to refit all of them. The problem is not with the end-item the whole system so the military will not simple order another Bradley. Its things like motors, engiene's, weapons guidance systems that have been used at 7x the rate they were expected to.

On the other hand the intelligence gathering and evaluating contractors as well as those providing PSD teams (basically high paid body gaurds) will expirence an instand cut-back in need.

The question an investor should ask when evaluating a company is if the backlog order (those they are going to get but have not done and have not been paid for) has already been factored into guidance and earning or earning estimate. Your question will orders increase at the conclusion is porbably hedged with a great deal of political risk as well. However I think the risk is muted since Democrats can easily blame the "Presidents War" for the cost of replacing this equipment and Republicans are usually bullish on military systems spending anyway.

William
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