General Dynamics Electric Boat, a wholly owned subsidiary of
General Dynamics Corporation
), has been awarded a U.S. Navy contract worth $41 million to
perform non-nuclear submarine modernization and maintenance work.
The contract includes four annual options. If these options are
exercised, the cumulative value of the contract would be $222.3
Under the contract, Electric Boat will continue operating the New
England Maintenance Manpower Initiative, providing a wide range
of non-nuclear overhaul, repair and modernization services in
support of submarines, floating dry docks, support and service
craft and other equipment at the base. About 250 Electric Boat
employees will be engaged in the work.
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.