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On May 14, 2013, shares of General Dynamics Corporation (GD - Analyst Report) hit a 52-week high of $77.00. Operational efficiency, a large number of contracts, solid liquidity position and effective cash deployment strategy have led General Dynamics to attain this high.
General Dynamics is a well-managed defense prime. Its inventory turnover of 9.6 times in the trailing twelve months, compared to only 2.8 times for the Zacks industry average, represents a strong sign of operational efficiency. In addition, the company’s operational effectiveness is evident in its industry-high Return on Investment (ROI) of 14.2%. Currently, the company has a current ratio of 1.39 compared to the Zacks industry average of 1.35.
Also, the company is flooded with a number of sizeable contracts. Total backlog at the end of the first quarter was $48.5 billion. Recently, the company introduced a smaller, more-capable Airborne Acoustic Processing System known as VENOM. This UYS-505 system leverages commercial-level advances in hardware in order to maximize the detection of submerged threats in deep and coastal waters.
Moreover, acquisitions made in the past are proving to be synergistic for the company. Fidelis Security Systems, Inc. that was acquired by General Dynamics in Aug 2012 recently integrated its flagship network security solution, Fidelis XPS, with International Business Machines Corporation’s (IBM - Analyst Report) security information and event management product, the IBM QRadar. This product collaboration will help in protecting customers’ valuable enterprise assets from complex advanced persistent threats.
General Dynamics holds a good liquidity position. The company continues to be a strong cash generator with cash and cash equivalents at the end of the first quarter of 2013 of $3.74 billion, up from $3.29 billion at the end of Dec 31, 2012. The company has a low long-term debt-to-capitalization of 21.1% compared to Zacks Industry Average was 43.6%.
Also, General Dynamics has an effective cash deployment strategy. In the first quarter, the company repurchased 1 million outstanding shares at an average price per share of $70. Also during the quarter the company increased its dividend by 9.8%, bringing the quarterly dividend to 56 cents per share or $2.24 on an annualized basis. This was the company’s 16th consecutive annual dividend increase. With the current price of $76.64, the company generates a dividend yield of 2.9%.
We expect the incremental dividend and expanded share buybacks to make the stock more attractive for investors. Also, the company’s sound liquidity position will allow the company to fulfill its future financial commitments.
General Dynamics currently carries a Zacks Rank #3 (Hold). Well-placed stocks in the defense industry include Northrop Grumman Corporation (NOC - Analyst Report) and Wesco Aircraft Holdings, Inc. (WAIR - Snapshot Report). Both hold a Zacks Rank #2 (Buy).