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General Dynamics (GD) Benefits From Budgetary Amendments

Zacks Equity Research
General Dynamics (GD) is expected to gain from a robust product line along with recent buyouts.

Recently, we issued an updated research report on General Dynamics Corporation GD. The company reported second-quarter 2018 adjusted earnings of $2.82 per share, which surpassed the Zacks Consensus Estimate of $2.49 by 13.3%. Moreover, total revenues of $9,186 million surpassed the Zacks Consensus Estimate of $9,108 million by 0.9%.

Solid performance in the combat systems, information systems and technology, marine systems as well as mission systems segments drove quarterly results.

What’s Driving General Dynamics?

General Dynamics is one of the only two contractors in the world equipped to build nuclear-powered submarines and one of the prime U.S. shipbuilders. An optimistic budgetary amendment tends to improve the profit margin of defense majors like General Dynamics. To this end, it is imperative to mention the fiscal 2019 defense budget, which got the U.S. Senate’s nod last month. Notably, this budget includes a spending provision of $194.1 billion for the U.S. Navy. In particular, it incorporates $58.5-billion procurement for purchasing 10 ships, including two submarines and 54 ships across the Future Years Defense Plan (FYDP).

The company boasts a robust pipeline in Europe and the Middle East. Moreover, Asia-Pacific has recently emerged as a region with higher demand for defense equipments, which offers enhanced expansion option for defense contractors.

While, such solid demand for varied defense products has led to the company’s organic growth, a notable acquisition strategy adds to General Dynamics’ inorganic growth. On Apr 3, 2018, General Dynamics completed the acquisition of CSRA Inc. for $9.7 billion. In May, the company completed the buyout of Hawker Pacific, a leading provider of integrated aviation solutions in Asia-Pacific and the Middle East, for $250 million. These acquisitions are expected to secure government IT contracts and boost aircraft service revenues, for the company, in the upcoming days.

However, rising interest rates and tough competition in the industry may hurt General Dynamics’ growth prospects.

Other Defense Stocks With Earnings Beat

Let us take a look at a few other stocks from the same industry, which also surpassed earnings estimate in the second quarter.

Lockheed Martin Corp LMT delivered second-quarter 2018 adjusted earnings of $4.31 per share, beating the Zacks Consensus Estimate of $3.89 by 10.8%.

Textron Inc TXT posted second-quarter 2018 earnings from continuing operations of 87 cents per share, which surpassed the Zacks Consensus Estimate of 70 cents by 24.3%.  

Huntington Ingalls Industries, Inc.’s HII second-quarter 2018 earnings of $5.40 per share surpassed the Zacks Consensus Estimate of $4.21 by 28.3%.

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General Dynamics Corporation (GD) : Free Stock Analysis Report
 
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