Force Protection, a unit of General Dynamics Corporation (GD), has received a contract worth $73.7 million from United Kingdom's Ministry of Defense. As per the contract, company will provide 51 new Foxhound armored patrol vehicles, valued at $1.4 million each, to the Ministry of Defense.
Foxhound is an improved vehicle with a V-shaped hull that provides protection against the bombs, which have been a common tactics of Taliban fighters in Afghanistan. It is a lightweight mine-protected vehicle, weighing only 7.5 ton. The vehicle being light weight can be transported to theater aboard a C-17 or C-130 aircraft and even carried on a sling beneath a CH-47 helicopter. Its turbocharged diesel engine has the capability to reach a speed of 80 mph. The current contract will bring the total number of vehicles to 376 for the Army’s fleet.
The Foxhound will replace the Army’s Snatch Land Rover, which was weak for roadside bombs used by insurgents in Iraq and Afghanistan. Snatch Land Rover is a heavy weighted mine resistant, ambush protected (“MRAP”) vehicle developed during the Iraq war.
General Dynamics had acquired Force Protection in December 2011 for $360 million, which became a part of General Dynamics’ Land Systems. Force Protection's portfolio includes the Buffalo mine clearance vehicle, the Cougar Mine Resistant Ambush Protected (:MRAP) and the smaller Ocelot light patrol vehicle.
The acquisition of Force Protection has boosted General Dynamics, going forward. This is evident from the current contract as well as General Dynamics’ announcement that its Land Systems unit is building a new "Super Buffalo" mine-sweeping vehicle in order to improve the existing Buffalo system created by Force Protection.
Off-late, the company has made several acquisitions. In September this year, the company completed the acquisition of Open Kernel Labs, Inc. (OK Labs), which has become a part of General Dynamics’ C4 Systems. OK Labs is a leading provider of virtualization software for securing wireless communications, applications and content for mobile devices and automotive in-vehicle infotainment systems. The acquisition has enhanced the company’s capabilities as a provider of secure mobile devices for all its customers as well as in-vehicle infotainment systems (:IVI) for the commercial market.
Prior to this, the company had completed the acquisition of Fidelis Security Systems, Inc. in August 2012. Fidelis is a market leader in cyber security tools that provide real-time network visibility, analysis and control. Like Force Protection, going forward, the acquisition of these units would also be beneficial for the company.
We view General Dynamics as a well-run company that is likely to continue delivering on expectations, driven by revenue growth, margin expansion and cash flow generation. Looking forward, key drivers include a reviving business jet market business and a stable business for the U.S. military vehicles.
However, we believe that the fortunes of the company are largely tied to the U.S. defense budget, where the threat of budget cuts is looming. Also, we have turned slightly cautious about the risks related to the execution of key projects.
Like its peers, Northrop Grumman Corporation (NOC) and Lockheed Martin Corporation (LMT), General Dynamics 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 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 Combat Systems, Marine Systems, and Aerospace.
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