General Dynamics Ordnance and Tactical Systems, a unit of General Dynamics (GD), received two contracts from Maneuver Ammunition Systems (MAS) at Picatinny Arsenal, New Jersey. The contract involves production of 30mm M789 High Explosive Dual Purpose (HEDP) ammunition and Phase III development of 25mm scalable fuze technology. The total value of the two contracts is $14 million.
The defense department has asked General Dynamics to establish a full-production capability for the M789 cartridge, as the cartridge is extensively used in operations in Iraq and Afghanistan by the Apache AH-64 helicopter. The Apache helicopter was widely used in Middle-East operations as it provided accurate air support to the army with minimum collateral damage.
The development of the fuze technology will allow the users a plug-and-play capability for munitions ranging from 25mm to 50mm calibers. The new 25mm fuze technology will provide the U.S. Army Bradley Fighting Vehicle and U.S. Marine Corps LAV-25, a capability to reach targets in defilade via an airburst projectile. The advanced technology will also provide the ability to detonate a projectile within a hard target by using a selectable or delayed point detonation feature.
We appreciate General Dynamics’ ability to win two new contracts from the Defense department. However, if Pentagon goes by its previously announced plan to trim costs in the tune of $100 billion within the next five years, it can impact the future prospects of the defense contractor. The major competitors of the company, Boeing Co. (BA), Lockheed Martin Corporation (LMT) and Textron Inc. (TXT), will also face similar challenges as encountered by General Dynamics on the event of the threatened cost cut.
We believe the positive catalysts for the stock are a strong backlog of $63.9 billion at the end of the first quarter of 2010 and strong cash flow generation. We presently retain our Neutral outlook and Zacks Rank #3 (Hold) on General Dynamics, as the future prospects of the company are largely tied to the U.S. defense budget. Adding to its woes is a bleak scenario for mid-sized cabin jets and risks related to execution of key projects.
Read the full analyst report on "GD"
Read the full analyst report on "BA"
Read the full analyst report on "LMT"
Read the full analyst report on "TXT"
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