GD Wins Air Force Contract

General Dynamics Corporation (GD - Analyst Report) bagged a $50 million contract from the U.S. Air Force to perform specialized research and use advanced state-of-the-art material technologies or applications in several programs within the survivability portfolio of the Pentagon. The company has significant exposure in survivability programs.

General Dynamics has earlier worked on M1A2 SEP, Abrams Integrated Management (AIM) and Tank Urban Survivability Kit (TUSK) programs. These programs focused on improving the electronics, command-and-control capabilities and armor enhancements for higher crew survivability. General Dynamics finished the first half of fiscal 2009 with a total order backlog of $67.6 billion, a 22.2% rise over the year-ago period. Subsequent to that, the companies haven’t won any significant major contract.

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 segments: Information Systems & Technology (IS&T), Combat Systems, Marine Systems, and Aerospace.

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.

However, these are offset by apprehensions over defense spending under the Obama Administration, a bleak scenario for the Gulfstream, risks related to key projects execution and order cancellation of the FCS program. Thus we maintain our market Neutral recommendation on the shares.

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