On Dec 30, 2013, the shares of General Dynamics Corp. (GD) hit a 52-week high of $95.10. General Dynamics registered positive earnings surprises in the last three quarters, with an average beat of 9.75%.
The third quarter 2013 results of this aerospace and defense major surpassed our expectation. Earnings of $1.84 per share were 9.5% ahead of the Zacks Consensus Estimate and surpassed the year ago figure by 8.2% primarily due to robust aerospace activity.
The company has a strong balance sheet, with its debt-to-capitalization ratio at 31.0% as on Dec 30, 2013, much lower than the peer group average of 69.3%. The strong financial standing enables the company to return more to its shareholders through buybacks and regular dividend payments.
As of third quarter 2013, General Dynamics repurchased 9.2 million shares. The board of directors authorized another buyback of 10 million shares, which will further boost shareholder value.
Encouraging third quarter results prompted the company to revise its earnings guidance for 2013 upwards to a range $6.90 to $7.00 from $6.85 to $6.95 per share earlier. The current guidance reflects growth of 5.2% to 6.7% from 2012 earnings of $6.56 per share.
The Zacks Consensus Estimate for 2013 increased 0.9% in the last 90 days to $7.02 per share reflecting a year-over-year rise of 8.38%. The 2014 consensus also increased 0.4% to $7.24 in the last 90 days reflecting year-over-year growth of 3.14%. We expect long-term earnings growth of 5.9%
Consistent contract wins over the last twelve months and a solid third quarter performance are also reflected in its traded price. General Dynamics’ share price closed at $95.10 on Dec 30, reflecting a gain of 40.3% over the twelve-month period.
General Dynamics currently has a Zacks Rank #2 (Buy). Other players in the aerospace/defense sector, which also look attractive at current levels, include Lockheed Martin Corp. (LMT), The Boeing Co. (BA) and Northrop Grumman Corp. (NOC). All these stocks carry the same Zacks rank as General Dynamics.