General Dynamics Electric Boat, a subsidiary of aerospace and
General Dynamics Corporation
), won a $459 million contract from the US Navy for the
modification of nuclear submarines. The contract was first
awarded in October 2011 and is likely to accrue a value of $1.2
billion over a period of three years.
As per the agreement, Electric Boat will provide engineering,
design, logistics support and research and development facilities
for the active U.S. submarines and submersibles. Besides, it will
deliver information and maintenance services combined with
modernization, training and cost control services.
General Dynamics is focusing on high-quality Navy projects in
order to keep its growth momentum steady, especially in the face
of weak U.S. defense environment. The company recently secured a
$100.4 million modification contract from the US Navy to provide
lead-yard services for Virginia-class nuclear-powered attack
We believe General Dynamics' string of contract wins during
the second quarter 2012 would help the company fetch stable
returns. In addition, the company's aerospace business looks
encouraging and is expected to witness production ramp-up thereby
contributing to near-term top-line growth.
However, stringent defense budgetary cutbacks by the
government, less active repurchase programs and execution risks
could pose serious challenges to General Dynamics' growth goals.
Also, a decline in the company's Information Systems and
Technology business in the second quarter 2012 and low dividend
yield make us skeptical about General Dynamics' financial
performances in the following quarters.
The company trimmed its earnings guidance range for 2012 to
$7.00-$7.10 per share from $7.10-$7.20 per share earlier. The
Zacks Consensus Estimates for the third quarter and full year
2012 are currently pegged at $1.77 per share and $7.10 per share,
The company mainly competes with
The Boeing Company
Northrop Grumman Corporation
). General Dynamics presently has a Zacks #4 Rank (Sell rating).
Over the longer run, we maintain our Neutral recommendation on
Based 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, Combat Systems, Marine Systems, and Aerospace.
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