On Jun 18, 2013, the shares of General Dynamics Corporation (GD) climbed to its 52-week high of $79.48. This was primarily driven by the company’s strong booking, operational efficiency and liquidity position.
General Dynamics is flooded with a number of contracts from several government establishments. The comany had a total backlog of $48.5 billion at the end of first-quarter 2013. In the recent past, the company managed to get a few significant contracts. On Jun 4, 2013, the company won a contract, worth $2.8 billion, from the Department of Defense (DoD) and the U.S. Navy to construct four Arleigh Burke-class destroyers.
As of Mar 31, 2013, General Dynamics had a cash balance of $3.74 billion and cash flow from operating activities of $0.5 billion during the first three months of 2013. A strong financial position enables the company to introduce new products, repurchase shares and increase the dividend rate.
General Dynamics has rewarded shareholders by returning a substantial portion of its free cash flow through share repurchases and incremental dividends over the years. During first-quarter 2013, the company repurchased 1 million outstanding shares at an average price of $70 per share. During the quarter, General Dynamics increased its dividend to 56 cents per share. The company’s practice of raising dividend from time to time will benefit the stock as it attracts investor attention.
General Dynamics Canada recently introduced a small and more-capable Airborne Acoustic Processing System, called 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.
The present valuation also makes General Dynamics attractive. The forward price/earnings (P/E) multiple of 12.2x is lower than the peer group average of 16.1x, reflecting a discount of 24.2%. The price/book (P/B) multiple of 2.4x is also lower than the peer group average of 3.0x. In addition, the company’s operational efficacy is apparent in its Return on Investment (ROI) of 14.2%, which is higher than the peer group average of 13.3%.
General Dynamics currently has a Zacks Rank #3 (Hold). The stocks in the industry that are worth considering include Astronics Corporation (ATRO) and Kratos Defense & Security Solutions, Inc. (KTOS) with a Zacks Rank #1 (Strong Buy), and Curtiss-Wright Corporation (CW) with a Zacks Rank #2 (Buy).
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