Gen'l Dynamics to Build Saudi Tanks - Analyst Blog

Defense contractor General Dynamics Corporation (GD) received a $19 million contract to convert 15 of Saudi Arabia's M1A1 tanks into the M1A2S model. The contract adds to the company's existing $58 million contract entered in 2008, and modified in 2009.

The contract was awarded to General Dynamics Land Systems, a unit of General Dynamics, by the U.S. Army TACOM Lifecycle Management Command on behalf of the Royal Saudi Land Forces.

The M1A2S model vehicles possess distinct capabilities that increase the weapon's ability to kill while limiting obsolescence. General Dynamics Land Systems will carry out the project work at the Joint Systems Manufacturing Center in Lima, Ohio, with the help of current employees. The company estimates completion of work by March 31, 2012.

Under the $58 million contract received in 2008, General Dynamics is required to design, develop, convert, implement and test a hybrid configuration of the M1A1, M1A2 and M1A2 System Enhancement Package (SEP) tank variants for Saudi Arabia. The 2009 modification that added $17.6 million was for the purchase of long lead materials for the 15-tank conversion.

Based in Falls Church, Virginia, General Dynamics is a market leader in business aviation; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems; and information systems and technologies. The company was ranked as the fourth largest U.S. defense contractor in terms of revenue in fiscal 2009, after The Boeing Company (BA), Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC).

General Dynamics Land Systems is an operating unit of the company's Combat Systems segment. General Dynamics Land Systems designs, manufactures and supports land and amphibious combat systems for the U.S. Army, the U.S. Marine Corps and allied nations. The Unit's principal products are the U.S. Army's M1A2 SEP Main Battle Tank and Stryker armored wheeled vehicle, the U.S. Marine Corps' Expeditionary Fighting Vehicle (EFV) and various robotic initiatives.

General Dynamics currently estimates full-year 2010 operating earnings in the range of $6.70 - $6.75 per share, taking into consideration the robust performance during the third quarter. The Zacks Consensus Estimates for fourth-quarter 2010, fiscal year 2010 and 2011 are $1.85 per share, $6.76 per share and $7.09 per share, respectively.

General Dynamics currently retains a Zacks #3 Rank (short-term Hold rating). We also maintain our Neutral recommendation on the stock.