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GD Gets Air Force Task Order

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General Dynamics Information Technology, a business unit of General Dynamics Corporation (GD - Analyst Report), has been awarded a two-year, $6 million task order by the Air Force Intelligence, Surveillance and Reconnaissance Agency. Per the order the company would provide technical support services to the Air Force Joint Worldwide Intelligence Communications System (AF JWICS) Enterprise. General Dynamics would also help the Air Force streamline its communications networks and integrate with national-level Intelligence Community Information Technology Enterprise (IC ITE) and Desk Top Enterprise (DTE) initiatives.

Under this contract, General Dynamics will deliver a wide range of information technology (IT) services to support the continued operations of AF JWICS from numerous service centers. As per the order the company will assist the government in operating, maintaining and sustaining the centers. These centers provide core services to support the Air Force missions worldwide.

Headquartered at Lackland Air Force Base, the Air Force Intelligence, Surveillance and Reconnaissance Agency provides integrated, cross-domain ISR capabilities in concert with other service, joint, national and international partners. The Joint Worldwide Intelligence Communications System is the Top Secret/Sensitive Compartmented Information component of the Defense Information System Network used by the defense intelligence community to transmit classified multi-media intelligence communications worldwide.

This task order was awarded under the Defense Intelligence Agency (DIA) Solutions for the Information Technology Enterprise (SITE) contract, a multiple-award, indefinite delivery, indefinite quantity contract awarded in May 2010.

Headquartered in Falls Church, Virginia, 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.

General Dynamics was the third largest U.S. defense contractor in terms of revenue in fiscal 2011, after The Boeing Company (BA - Analyst Report) and Lockheed Martin Corporation (LMT - Analyst Report). The company is one of two contractors equipped to build nuclear-powered submarines in the U.S.

Looking forward, key growth drivers for General Dynamics include the improving business jet market, its stable business of U.S. military vehicles, a backlog (though declining) of $51.5 billion, 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 cut is high. Also, we have turned slightly cautious about the company’s steadily dropping order backlog, and risks related to the execution of key projects.

General Dynamics’ total order backlog decreased to $51.5 billion at the end of the first nine months of 2012 from $59.6 billion at fiscal-end 2010. Going forward, the U.S. economic fundamentals are basically being kept on a leash as the Euro-crisis continues to cast its spell over the financial markets, keeping risks of further cutbacks in future defense budgets at a high level. Our apprehension is fueled by $15 trillion of national debt and an unemployment rate hovering around 7.9% which would lead to the Budget Control Act’s dictum of automatic cutbacks across the board going forward.

Going by the pulse of the economy and the pros and cons, we prefer to maintain our long-term Neutral recommendation on the stock. Moreover, General Dynamics holds a Zacks #3 Rank that translates into a short-term Hold rating.

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