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General Dynamics Armament and Technical Products (“GDATP”), a unit of General Dynamics Corporation (GD - Analyst Report), has entered into an agreement, worth $224 million, with the U.S. Army. Per the contract, the company will supply as well as support the army’s Hydra-70 rocket program. The company expects to complete the deliveries by early 2015.

The deal consists of two contracts including the production of Hydra-70 air-to-ground rockets with ticket size of $210.4 million and engineering services valued $13.5 million.

General Dynamics will supply these rockets from its facilities at Camden, Arkansas and Springboro, Ohio. The Army Contracting Command in Redstone Arsenal, Alabama has ordered the rockets for the U.S. Army.

GDATP supplies weapons, armament and vehicle survivability systems to the U.S. armed forces and its partners. It also manufactures several kinds of structures for the commercial, aerospace and defense markets.

GDATP is the system integrator of the Hydra-70 family of rockets. The 2.75-inch diameter rockets have two major parts: the MK66 rocket motor and cargo warheads to employ against targets. In addition, these rockets provide the user with a fatal and lightweight weapon system with multi-mission capacity.

Since the introduction in 1996, this rocket has been sold to several domestic as well as international customers. In June 2011, GDATP received a contract, worth $286 million, from the U.S. Army to manufacture the Hydra-70 air-to-ground rocket. These rockets’ proven track record enables General Dynamics to become the trusted supplier for national as well as international government agencies.

General Dynamics reported fourth-quarter 2012 earnings of $1.39 per share, missing the Zacks Consensus Estimate of $1.90 per share. The reported figures were below the year-ago figure of $2.20 per share. The results reflect the negative impact of the defense budget.

Since the U.S. Department of Defense is one of the key clients of General Dynamics, any further cutback in the U.S. defense budget could limit the company’s growth prospects. Due to this issue, the company has already experienced a 10.7% year-over-year drop in the fourth-quarter 2012 total backlog of $51.3 billion. In addition, a higher level of competition from a number of players in each of its business segments is our major concern.

However, we believe the company’s capability to obtain consistent contracts will improve the top line going forward.

General Dynamics Corporation currently has a Zacks Rank #3 (Hold). Other stocks from the industry we presently prefer are Zacks Ranked #1 (Strong Buy) Huntington Ingalls Industries Inc. (HII - Snapshot Report), and Zacks Ranked #2 (Buy) The Boeing Company (BA - Analyst Report) as well as Lockheed Martin Corporation (LMT - Analyst Report).

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