GD Upgrading M1A1 Tanks to M1A2

General Dynamics Land Systems, a subsidiary of  General Dynamics Corporation (GD - Analyst Report), has received a $60 million contract under which it will continue upgrading M1A1 tanks to the M1A2 Systems Enhancement Package (“SEP”) V2 configuration.

M1A2 SEP V2 is the most advanced digital tank with improved color displays, day and night thermal sights, commander remote operated weapon station (“CROWS II”), a Thermal Management System (“TMS”) and a tank-infantry phone. 

In February 2008, the company had originally received the order from the U.S. Army TACOM Lifecycle Management Command under which it was responsible for upgrading 435 M1A1 tanks that were in the Army's inventory for more than 20 years. The company is continuously working on conversion of the tanks to the M1A2 SEP V2 configuration. Moreover, the company is developing further upgrades proposed for the Continuous Electronics Enhancement Program (“CEEP”) building on the latest SEP and Tank Urban Survivability Kit (“TUSK”) configurations of M1A1 and M1A2 main battle tanks.

The task for the current contract will be performed at Anniston, Alabama, Tallahassee, Florida, Sterling Heights, Michigan; Lima, Ohio; and Scranton, Pennsylvania. The work is expected to be completed by June 2013.

General Dynamics’ revenue exposure is spread over a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding design, repair and construction; and information systems, technologies and services. Diversification of revenue through exposure to a number of uncorrelated markets will keep the overall growth momentum steady. Looking forward, other key drivers include the improving business jet market, its stable business of U.S. military vehicles, an ongoing share repurchase program and strong cash flow generation.

However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming. Also, we have turned slightly cautious about the ongoing macro weakness. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Based in Falls Church, Virginia, General Dynamics Corporation 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 mainly competes with The Boeing Company (BA - Analyst Report) and Lockheed Martin Corporation (LMT - Analyst Report).

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