General Dynamics Corporation’s (GD) business unit General Dynamics Land Systems was awarded a $198 million contract to build 140 M1A1 SA (Situational Awareness) tanks for Iraq. Work on the contract will be performed in Lima, Ohio; Scranton, Pennsylvania; Anniston, Alabama and Tallahassee, Florida. The completion date for the contract is May 31, 2011.
In recent times the Combat Systems segment has been the revenue growth leader. In the recent third quarter segmental top line grew 26.9% year-over-year. Key drivers for the growth were Stryker wheeled combat vehicle and Abrams main battle tank programs. General Dynamics ended the first nine months of fiscal 2009 with an order backlog of $12.9 billion. The company expects revenue growth for the full-year 2009 in Combat Systems of approximately 21% over 2008 with operating margins between 12.5% – 12.7%.
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 business segments − Information Systems & Technology, Combat Systems, Marine Systems, and Aerospace. The major competitors of the company are Northrop Grumman Corporation (NOC), Lockheed Martin Corporation (LMT), EMBRAER – Empresa Brasileira de Aeronáutica S.A. (ERJ) and Force Protection Inc. (FRPT).
We view General Dynamics as a well-run company that is likely to continue to deliver on expectations driven by strong revenue growth, margin expansion and cash flow generation. Strong defense outlays should further improve the company’s outlook for shareholders while an increasing funded backlog and an improving balance sheet signal additional positive factors for the company. We maintain our Neutral recommendation on the shares.
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