General Dynamics Corporation
) has acquired Applied Physical Sciences Corporation in a cash
deal for an undisclosed price.
Applied Physical Sciences is a provider of applied research and
development services, and will complement the engineering
programs of General Dynamics Electric Boat, a wholly owned
subsidiary of General Dynamics.
Applied Physical Sciences offers research, development,
engineering and prototyping services to government and commercial
customers in the areas of acoustics, signal processing, marine
hydrodynamics and electromagnetics. It is an industry leader in
the fields of directional underwater transducers, maritime and
sensing and communication systems, and special purpose underwater
devices for government laboratories, universities and industry.
The company has 95 employees.
Applied Physical Sciences' headquarters and manufacturing
facility are located in Groton, Connecticut. It also has offices
in Lexington, Massachusetts; Arlington and Suffolk, Virginia; and
Headquartered in Falls Church, Virginia, General Dynamics engages
in mission-critical information systems and technologies; land
and expeditionary combat vehicles, armaments and munitions;
shipbuilding and marine systems; and business aviation. The
company operates through four segments: Information Systems &
Technology (IS&T), Combat Systems, Marine Systems, and
General Dynamics was the third largest U.S. defense contractor in
terms of revenue in fiscal 2011, after
The Boeing Company
Lockheed Martin Corporation
). The company is one of two contractors equipped to build
nuclear-powered submarines in the U.S.
Looking forward, key growth drivers for General Dynamics include
the improving business jet market, its stable business of U.S.
military vehicles, a backlog (though declining) of $51.5 billion,
an ongoing share repurchase program and strong cash flow
generation. However, the company is largely tied to the U.S.
defense budget, where the threat of budget cut is high. Also, we
have turned slightly cautious about the company's steadily
dropping order backlog, and risks related to the execution of key
General Dynamics' total order backlog decreased to $51.5
billion at the end of the first nine months of 2012 from $59.6
billion at fiscal-end 2010. Going forward, the U.S. economic
fundamentals are basically being kept on a leash as the
Euro-crisis continues to cast its spell over the financial
markets, keeping risks of further cutbacks in future defense
budgets at a high level. Our apprehension is fueled by $15
trillion of national debt and an unemployment rate hovering
around 7.9% which would lead to the Budget Control Act's dictum
of automatic cutbacks across the board going forward.
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Going by the pulse of the economy and the pros and cons, we
prefer to maintain our long-term Neutral recommendation on the
stock. Moreover, General Dynamics holds a Zacks #3 Rank that
translates into a short-term Hold rating.