General Dynamics Corporation
) has been awarded a $51.7 million contract modification by the
U.S. Navy to plan and perform the post-shakedown availability
(PSA) on the nuclear submarine USS Mississippi (SSN-782).
Mississippi is the ninth ship of the Virginia Class, the most
advanced submarines in the world. These ships provide the Navy
with advanced capabilities to retain its undersea dominance well
into the 21st century.
Initially awarded in April 2012, the contract has a total
potential value of $67 million. The contract includes
maintenance, repairs, alterations and testing. Work will be
performed at the company's Groton shipyard. Up to 400 employees
will be engaged in the work, which is scheduled for completion by
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
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 kept on a leash as the Euro-crisis continues to
cast its spell over the financial markets, making further
cutbacks in future defense budgets more and more likely. 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.
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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.