General Dynamics Corporation
(
GD
) has received from the U.S. Army a $16.2 million contract to
provide information technology support services in Afghanistan. All
work on the contract will be performed in Afghanistan.
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 over $52
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. Also, we
have turned slightly cautious about the company's steadily dropping
order backlog, and risks related to the execution of key projects.
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.
For the future, the company's focus will be on the revival of the
business jet market (Gulfstream) along with programs such as the
Warfighter Information Network Tactical program and Joint Tactical
Radio System in the IS&T division.
Similarly, the Combat Systems and Marine Systems segments will
receive a boost from higher volumes in the U.S. military vehicle
business (Stryker combat vehicles and Abrams tanks) and ship
programs like DDG-51, Virginia class submarines and the Mobile
Landing Platform program.
General Dynamics' total order backlog decreased to $52.4 billion at
the end of the first half 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 8.3% 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
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