Shares of Costa Mesa-based Ceradyne Inc., a maker of ceramics for military armor and dental braces, dropped more than 6% Wednesday on analyst concerns that Pentagon orders will taper off.
Analyst Brian J. Butler of Friedman, Billings, Ramsey Group Inc. said he thinks the stock could fall another 14% due to an anticipated decrease in long-term demand by the military for protective armor.
The company’s shares took a hit despite word Tuesday that it expects to more than double profits in 2006 after a record fourth quarter.
Ceradyne is set to report sales of about $178 million for the fourth quarter, up 56% from a year ago.
New orders for the quarter are expected to come in at $314 million, also a quarterly record.
Backlog at the end of 2006 was about $344 million, up 25% from 2005.
Still, demand for ceramic body and vehicle armor may have hit its peak, according to analyst Butler.
The Army and Marines need 1.1 million sets of body and helicopter armor, according to an Associated Press report.
Both branches have received roughly 576,000 sets, leaving less than half to be delivered.
It would take fewer than 16 months of production to meet the military’s needs, Butler said in a report cited by the AP.
“We believe that as the military approaches its full demand requirements and pressure builds to reduce troop levels in Iraq, delivery rates could gradually begin to slow,” Butler said.
