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General Dynamics $22B Contract Win Suggests Strong Fundamentals

General Dynamics

General Dynamics (NYSE: GD) shares retreated after reaching a record level of $190 three months ago. The selloff in the share price of aerospace and defense companies is due to industry-related headwinds.

General Dynamics’ new contract win of $22.2 billion would help in strengthening sentiments. Some investors believe GD shares are presenting an attractive entry point for new investors.

GD General Dynamics Corporation daily Stock Chart

Along with the share price appreciation, the company has been awarding investors with big cash returns in the form of dividends and share buybacks. It offers a dividend yield of 2.22%; the company has raised dividends in the past 25 consecutive years.

Future Fundamentals are Strong for General Dynamics      

The company has strong future fundamentals. This is evident from the new contract win combined with a massive backlog of $67.4B. The company signed a new $22.2 billion with the U.S. Navy for construction of nine Virginia-class submarines with Virginia Payload Module.

Previously, the company signed a contract of $1.3 billion with the Canadian government for armored combat support vehicles.

On the other hand, its revenue and earnings growth is likely to accelerate in the coming quarters. In the latest quarter, it generated 7% year over year revenue growth. Diluted earnings per share also increased at a high single-digit rate.

Our continued focus on operating excellence and driving cost efficiencies, coupled with new business opportunities, should enable us to build on these results,” Phebe N. Novakovic, chairman, and the chief executive officer said.”

Cash Returns and Valuations are Attractive

Its cash returns are safe. Indeed, the company is in a position to offer higher returns in the coming quarters. It generated $1.1 billion in operating cash flows compared to dividend payments of $295 million.

The huge gap in operating cash flows and dividend payments allowed it to return approximately $450 million in share buybacks. In addition, General Dynamics stock price is trading at attractive valuations despite sharp year to date rally.

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siraj sarwar

Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.
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