GD Awarded $52 Million Contract - Analyst Blog

General Dynamics (GD) through its wholly owned subsidiary, General Dynamics Electric Boat won a $51.8 million maintenance contact from the US Navy. General Dynamics will primarily carry out maintenance, repairs, alterations and testing on USS New Mexico, a nuclear submarine. The maintenance work will be carried out in Groton, involving up to 450 employees and is expected to be completed by July 2011.

 

General Dynamics Corporation engages in mission-critical information systems and technologies; 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 as per 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 for the quarter was $210.0 million.

 

Despite winning new contracts, the future prospects of General Dynamics, to a large extent, depend 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, which is in line with the Zacks Rank #3 (Hold).