Virginia-based US defense contractor, General Dynamics Corp. (GD), through its subsidiaries, won two contracts from the US Navy, worth approximately of $277 million. Of the contracts secured, Bath Iron Works was awarded a $105.4 million contract for procurement of advanced material and support for DDG 1001 and DDG 1002, Zumwalt class of guided missile destroyers. Full execution of the work related to the contract is expected by February 2011.
General Dynamics Electric Boat was awarded a $171.8 million contract to provide service work for Virginia-class submarines. Electric Boat will be primarily engaged in offering lead-yard services, including maintenance and updating of design drawings and data, and conducting research and development work. The contract has a potential cumulative value of $881 million through 2014.
General Dynamics is principally engaged in mission-critical information systems and technologies; work related to land and expeditionary combat vehicles, armaments and ammunitions; shipbuilding and marine systems; and aviation business. The company is also the fourth largest U.S. defense contractor in terms of revenue in fiscal 2009.
Ending the first fiscal quarter of 2010, the company’s total backlog was $63.9 billion, and the estimated potential contract value was an additional $17.0 billion. Cash and cash equivalents were approximately $2.0 billion and cash generation in the quarter was $210.0 million.
Despite winning new contracts, the future prospects of General Dynamics depend chiefly upon defense spending. The U.S. defense department has expressed its intention to cut down on defense spending and save $100 billion over the next five years. Such cost reduction will impact the future prospects of General Dynamics and also that of other defense contractors. Prime competitors of the company include Boeing Co. (BA), Lockheed Martin Corporation (LMT), and Textron Inc. (TXT).
Given General Dynamic’s dependence on the U.S defense budget and risks related to the execution of key projects, we maintain a Neutral recommendation on the stock.
Read the full analyst report on “GD”
Read the full analyst report on “BA”
Read the full analyst report on “LMT”
Read the full analyst report on “TXT”
Zacks Investment Research
