General Dynamics Corporation
(
GD
) has won a $32 million contract from
Northrop Grumman Corporation
(
NOC
) for communications network technology for the NATO Alliance
Ground Surveillance ("AGS") program. Alliance Ground Surveillance
is a NATO programme for acquiring an airborne ground surveillance
capability.
Under the contract, General Dynamics will offer the software
required to control the AGS Communications Ground Control System,
or CGCS. The CGCS will manage radio and satellite communications
between Global Hawk unmanned aerial vehicles and the main
operating base in Sigonella, Italy.
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
Aerospace.
General Dynamics was the third largest U.S. defense contractor in
terms of revenue in fiscal 2011, after
The Boeing Company
(
BA
) and
Lockheed Martin Corporation
(
LMT
). 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
essentially the company's improving business of 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 looming large. Also, we have turned slightly cautious about
the company's steadily dropping order backlog, and risks related
to the execution of key projects.
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 being effectively kept on a leash as the
Euro-crisis continues to cast its spell over the financial
markets, making them more and more prone to risks of further
cutbacks in future defense budgets. Our apprehension is further
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.
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.
BOEING CO (BA): Free Stock Analysis Report
GENL DYNAMICS (GD): Free Stock Analysis
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LOCKHEED MARTIN (LMT): Free Stock Analysis
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NORTHROP GRUMMN (NOC): Free Stock Analysis
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