General Dynamics Bags Army Deal

General Dynamics Corp.’s (GD - Analyst Report) business unit General Dynamics Information Technology has been selected as the prime contractor and awarded a $322 million contract by the U.S. Army for the initial outfitting and transition support of the newly renovated Walter Reed National Military Medical Center in Bethesda, Maryland, and the newly constructed Fort Belvoir Community Hospital in Virginia. General Dynamics Information Technology is a part of the company’s Information Systems and Technology segment.
 
In recent times the Information Systems and Technology segment has been the star performer of the company. In the recent quarter, the segment recorded 8.8% upside year-over-year in its topline, while the bottom line also improved by 9.6%. The most notable drivers were several integrated combat systems contracts, cyber security programs and a contract to build the spacecraft for NASA’s Landsat Data Continuity Mission. The acquisition of Axsys Technologies, Inc. in September 2009 also contributed to the segmental growth.
 
Key programs contributing to this growth were the New Campus East (NCE) contract for the National Geospatial Intelligence Agency and the Warfighter Field Operations Customer Support (FOCUS) contract. A decline in commercial wireless infrastructure program however has partially offset the growth. The segment ended the first nine months of fiscal 2009 with an order backlog of $10.6 billion. The company expects segmental topline to improve by 8% – 9% in fiscal 2009 year over year.
 
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.
 
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.

Read the full analyst report on GD