Company description general dynamics is a defense

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COMPANY DESCRIPTION General Dynamics is a defense contractor with leading market positions in business aviation and aircraft services, land and amphibious combat systems, mission-critical information systems and technologies, and shipbuilding and marine systems. The company is headquartered in Falls Church, Virginia. It has four main business segments: Aerospace, Combat Systems, Information Systems & Technology, and Marine Systems. GD shares are a component of the S&P 500. VALUATION We think that GD shares are attractively valued at current prices near $215, above the midpoint of the 52-week range of $190-$230, but down about 6% from their all-time high. On a technical basis, the shares have been in a positive trend of higher highs and higher lows that dates to November 2012. To value the stock on a fundamental basis, we use peer and historical multiple comparisons, as well as a dividend discount model. GD shares are trading at 19-times projected 2018 earnings, near the high end of historical range of 12-20. On a price/sales basis, the shares are trading above the midpoint of the five-year range. The dividend yield of about 1.7% is below the midpoint of the five-year range. Compared to the peer group, GD’s multiples are generally in line with or below industry averages, but the company could command a premium as cash flow improves. Our dividend discount model now indicates a fair value north of $260. Based on our blended analysis, our target price is $250. On April 25, BUY-rated GD closed at $214.53, down $7.49. (John Eade, 4/25/18)
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M ARKET D IGEST - 8 - LOCKHEED MARTIN CORP. (NYSE: LMT, $329.50) .............................................................. BUY LMT: Pullback offers buying opportunity * LMT shares have fallen about 10% from their 52-week high. * The company topped Street expectations in 1Q18 and raised its full-year guidance. * Management has a history of surmounting challenges, and a GOP-controlled House, Senate and White House should bode well for defense spending. * We believe that LMT shares are favorably valued at current levels. Our target of $385 assumes continued strong earnings based on increased U.S. and international defense spending. ANALYSIS INVESTMENT THESIS Our rating on Lockheed Martin Corp. (NYSE: LMT) is BUY. Lockheed has consistently surprised the Street in recent years, regardless of whether defense spending is rising or falling. In recent quarters, government spending has started to accelerate again, which should boost earnings. We have a favorable view of the company’s focus on international revenue diversification (now 25% of sales), and expect increased geopolitical tension to benefit sales and earnings going forward. The shares face ongoing headline risk, as the company’s F-35 fighter jet program has been targeted by President Trump from time to time. But management has a history of navigating through challenges. The company is mindful of shareholder returns and has raised the dividend at a double-digit rate for the past 15 years while also aggressively buying back stock. The current yield of 2.3% is high for the industry.
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