Zacks_Analysts' Blog : General Dynamics Gun System for LMT - Analyst Blog

General Dynamics Corporation’s (GD) business unit General Dynamics Armament and Technical Products has received a contract worth $23.6 million for production of more than two dozen GAU-22/A gun systems for the F-35 Lightning II from the world’s largest stand-alone defense contractor, Lockheed Martin Corporation (LMT).

The GAU-22/A is the latest application of the GAU-12/U, which is a four barrel version, designed for use on the F-35 Lightning II, also known as the Joint Strike Fighter (“JSF”). The major difference between the GAU-12/U and the GAU-22/A is the use of a four barrel system, rather than the five barrels on the standard GAU-12/U. The four barrel version is alleged to reduce weight and improve accuracy.

The F-35 Lightning II is a family of single-seat, single-engine, fifth generation multi-role fighters that performs ground attack, reconnaissance, and air defense missions with stealth capability and is used by all branches of the U.S. military and U.S. allies.

An internally mounted GAU-22/A gun system will support the conventional take-off and landing variant (F-35A), while externally mounted gun systems will be used by the short take-off and vertical landing variant (F-35B) and carrier version (F-35C) of the JSF.  Besides providing lower aircraft maintenance costs, the increased range of GAU-22/A guns will bring air superiority in tactical air-to-air and air-to-ground combat situations.

Along with GAU-22/A, the company also supplies advanced, lightweight composite radomes for Lockheed Martin’s F-35 aircraft. General Dynamics expects the production of GAU-22/A to begin in 2012.

Going forward, we expect General Dynamics’ overall growth momentum to remain steady as its revenue exposure is spread over a broad portfolio of products and services in business aviation.

Recently, General Dynamics announced fourth quarter and fiscal 2011 operating earnings. The company reported fourth quarter earnings of $2.20 per share, which surpassed the Zacks Consensus Estimate of $2.00. The company generated total revenue of $9.1 billion in the reported quarter and failed to meet the Zacks Consensus Estimate by $206 million.

Going by current trends, we are concerned about the threat of budget cuts and the ongoing macro weakness. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Headquartered in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation.