General Dynamics Information Technology, a business unit of General Dynamics (GD), won a contract worth $21 million from the U.S. Army. General Dynamics will upgrade voice telecommunications switching capabilities at two U.S. Army bases — Fort Carson, Colombia, and Redstone Arsenal, Alaska — through the Installation Information Infrastructure Modernization Program.
 
In the next two years, General Dynamics will engineer, furnish, install, test and cut over into operational service a full range of government certified telecommunications systems, including voice, transport and data networks. The company has been providing infrastructure modernization support to the U.S. Army for more than ten years.
 
During the first quarter of 2010, the Information Systems and Technology segment of the company posted the highest quarterly revenue in the group’s history. Continued contract wins will help sustain this trend, generating huge revenues going forward. General Dynamics expects the segment to grow revenue by 8–9% in fiscal 2010, with the quarterly revenue gradually increasing through the year.
 
General Dynamics expects earnings of $6.40–$6.50 per share for fiscal 2010.  However, the company’s guidance is more conservative than the Zacks Consensus Estimate of $6.58 for fiscal 2010. The Zacks Consensus Estimate for the second quarter of 2010 is earnings of $1.61 per share. For the fiscal 2011, the Zacks Consensus Estimate is earnings of $7.05 per share.
 
General Dynamics, headquartered in Falls Church, Virginia, is a market leader in business aviation; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems; and information systems and technologies.
 
With revenue growing across all segments, strong cash flow generation, ongoing share repurchase program and a backlog of $63.9 billion, General Dynamics is poised to benefit from strong defense outlays.
 
General Dynamics generates a major portion of its revenue from contracts offered by the U.S Army. As a caveat, it may be noted that the defense department is planning to cut down on defense expenses by $100 billion over the next five years. The future prospects of the company will be affected if budget pruning is carried out.
 
We thus maintain our Neutral recommendation on General Dynamics. The quantitative Zacks #3 Rank for the company indicates no clear directional pressure on the shares over the near term.
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