On Aug 21, 2014, shares of
General Dynamics Corp.
) soared to a new 52-week high of $124.25, finally ending the
trading session a little lower at $123.68. This defense prime with
a market cap of around $41.6 billion has seen its shares rise
roughly 29.4% so far this year, outperforming the 7.8% gain of the
S&P 500 over the same period.
What's Driving General Dynamics Up?
General Dynamics is one of the largest U.S. defense contractors
whose revenue exposure is spread over a broad portfolio of products
and services that help it to keep the overall growth momentum
steady. The company is one of the two contractors equipped to build
nuclear-powered submarines in the U.S.
Since the start of 2014, there have been a number of share price
gainers among the pure-play defense majors, with General Dynamics
leading the pack, driven by consistent contract wins and a stable
second-quarter 2014 performance.
The Pentagon's #3 contractor posted a 5.46% average positive
surprise over the last four quarters. Yet, its revenues fell 4.6%
in the second quarter, missing the Street expectation. Nonetheless,
this defense behemoth recently increased its overall earnings
outlook for the year to $7.40 to $7.45 per share from its earlier
forecast of $7.05 to $7.10 per share. The company's cost-cutting
initiatives spurred profitability even as defense spending by the
U.S. government remained low.
The maker of Gulfstream jets, tanks as well as U.S. Navy ships
expects to repurchase shares in the second half of 2014. The
company has already spent approximately $2.7 billion on share
buybacks so far this year.
Total backlog at the end of second-quarter 2014 was $71.1 billion,
up 27% from the preceding quarter. The company's total potential
contract value, the sum of all backlog components, increased 29% to
$99.5 billion in the second quarter 2014 - this marks the highest
for the company in the past four years.
Although the cloud of sequestration still hovers over the defense
sector, hurting many programs, this will have a minimal impact on
General Dynamics' future prospects. The escalating military tension
in the Asia-Pacific region has provoked the U.S. Department of
Defense to prioritize the company's prime shipbuilding programs.
Earlier this year, the U.S. Navy signed a $17.6 billion multi-year
contract with General Dynamics to build 10 Virginia-class
General Dynamics is a Zacks Rank #2 (Buy) stock. Other companies in
the defense space worth considering include Northrop Grumman Corp.
), Lockheed Martin Corp. (
) and Ducommun Inc. (
). Ducommun carries a Zacks Rank #1 (Strong Buy), while Northrop
Grumman and Lockheed Martin hold the same rank as General
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