Ceradyne (CRDN) Gets Expected Follow-on Order

By William Trent, CFA of Stock Market Beat

Ceradyne (CRDN) opened sharply higher this morning when they announced some good news. Ceradyne Gets $133 Million Army Contract – 12/22/2006 4:31:00 AM – Manufacturing.Net – CA6402229

Ceradyne said Firday it received a $133 million delivery order for Enhanced Side Ballistic Inserts (ESBI) from the U.S. Army, Aberdeen Proving Ground, Maryland.

The thing is, the order was part of an already announced contract. For sales to the military companies generally get an umbrella contract for a large quantity over multiple years. However, each year’s portion is subject to Congressional approval. So while it would have been bad news if the company did not receive the follow-on, receiving it was more or less expected.

As trading continues, it appears the market is coming to this conclusion, as half the initial gains have been reversed.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; FedEx (FDX) put options; Intuit (INTU) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Ceradyne (CRDN) put options; Dell (DELL) put options; Plantronics (PLT) put options

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