UPDATE 1-RESEARCH ALERT-Wachovia cuts Ceradyne to underperform

(Recasts; adds details)

Sept 3 (Reuters) - Wachovia Capital Markets downgraded Ceradyne Inc (CRDN.O) to "underperform" from "market perform", saying the company's contract for body armor with the U.S. army could get delayed again, and added that this delay could hurt the company's earnings outlook as early as the fourth quarter of 2008 and into 2009.

"The much-anticipated X-SAPI body armor contract, already delayed by about one year from its original target award date, could be delayed again as the Government Accountability Office reviews a protest submitted by one of Ceradyne's competitors (Arizona-based ArmorWorks)," analyst Gary Liebowitz said.

Ceradyne, which makes ceramic inserts for body armor used by U.S. troops, had on July 25 narrowed its full-year profit forecast, saying it now had a better idea of the Pentagon's requirements for products using its ceramic protection products.

"We believe that given the reduction in troop levels and the declines in attacks against US soldiers, the same urgency to deploy X-SAPI today as E-SAPI three years ago is simply not there," he added.

The analyst said the procurement has been delayed at least 5 times from its original target date of September, 2007 and there has been no urgency from the Army to rapidly deploy the armor.

Shares of the company, which also makes ceramics for industrial applications, closed at $44.65 Tuesday on Nasdaq. (Reporting by Anurag Kotoky in Bangalore; Editing by Jarshad Kakkrakandy)