Zacks defense sector analyst Jon Kolb had earlier upgraded the shares of defense and aerospace company General Dynamics Corporation (GD) from Hold to Buy. Here are some of the reasons why he is staying bullish:
'We view General Dynamics as a well-run company that is likely to continue to deliver on expectations due to strong revenue growth, margin expansion and cash flow generation. Several earnings accretive acquisitions should further improve the company's outlook for shareholders while an increasing funded backlog and an improving balance sheet signal additional positive factors for the company. Looking ahead, the company should benefit from an incremental army program funding from the anticipated $80 billion supplemental spending by the U.S. Army.
'General Dynamics continues to benefit from strong defense outlays. Revenue growth, margin expansion, and cash generation are the driving factors, and the business jet market for Gulfstream also appears to have stabilized. Management also believes there is ample near-term upside potential for the Combat Systems segment, which delivered significant earnings momentum in 2006, as well as a boost in earnings at the information services and technology (IS&T) segment due to acquisitions.
'However, concerns over a weaker shipbuilding outlook and risks associated with the commercial tanker program slightly moderate our outlook. Accordingly, we upgrade our recommendation on GD common stock to BUY with a six-month target price of $95.75. Price appreciation to our near-term valuation target, coupled with a secure $0.29 per share quarterly dividend, which appears very sustainable and secure, represents annualized total return potential of 17.3%.'
Read the full analyst report on GD.
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