RBC Upgrades General Dynamics On Valuation, Fundamentals

shares are undervalued relative to peers and its lagging stock price suggests a wise investment, an analyst said Wednesday. The defense contractor's shares are up about 2 percent year-to-date versus 7.6 percent for the

. General Dynamics traded recently at $134.60, off $0.60 (0.44 percent). RBC's Robert Stallard upgraded the company to Outperform, from Market Perform, leaving his $152 price target unchanged. "They have a pretty steady fundamental outlook," Stallard said. "This is an attractive entry point." Stallard said concern about the company's Gulfstream business jet unit in the face of weaker international demand is among perceived negatives for the stock. But the company is likely to reiterate its outlook for its aerospace business when it posts first-quarter results next month, Stallard said. Although General Dynamics may lag defense prime peers in returning cash to shareholders, Stallard said it now aims to give all its free cash flow to investors through buybacks and dividends. The company's defense services businesses could be ripe for a spinoff, given its comparatively narrow profit margins and consolidation in the sector, according to Stallard, although he's uncertain that a sound financial case for the action exists.