Barron's Believes General Dynamics (GD) is a Cheap Aerospace Play
Down)
Shares of General Dynamics (NYSE: GD) have fallen roughly 14 percent this year on fears of a budget cut in the Defense sector, but some investors are now looking at the company as a play on the Aerospace sector, according to Barron's.
Since President Obama announced the decision to pull out of the war in Iraq and Afghanistan, investors have been trying to calculate how this may negatively impact General Dynamics' earnings. The Defense sector accounts for about one third of the company's total earnings.
The company has the potential to benefit from increased activity in the Pacific region due to China building up its Navel fleet.
Investors have already largely priced in the defense budget cuts by the U.S. government as shares are only trading at 8x earnings. This multiple has lured muti-billion dollar investor Warren Buffett and his investment firm Berkshire Hathaway (Nasdaq: BRK-A) to rebuild a position in the company.
General Dynamics is also gaining substantial market share and popularity in the Aerospace sector with its newest plane the G650. The company will begin delivering the planes to customers in the second half of 2012 for a cool $65 million per plane. Barron's notes Gulfstream has already placed an order for 200 planes. The growth and solid increase in demand is due to the raising supply of billionaires in China.
The company’s CEO, Jay Johnson, believes the Aerospace sector will account for between 35 percent and 40 percent of total earnings over the next five years, or almost double the 20 percent it currently represents. Johnson also forecasts margins could increase from its current 13 percent level to the mid 20 percent range.
Investors are apparently liking the Barron's piece as the stock is set to open Monday's session about 3 percent higher.
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Since President Obama announced the decision to pull out of the war in Iraq and Afghanistan, investors have been trying to calculate how this may negatively impact General Dynamics' earnings. The Defense sector accounts for about one third of the company's total earnings.
The company has the potential to benefit from increased activity in the Pacific region due to China building up its Navel fleet.
Investors have already largely priced in the defense budget cuts by the U.S. government as shares are only trading at 8x earnings. This multiple has lured muti-billion dollar investor Warren Buffett and his investment firm Berkshire Hathaway (Nasdaq: BRK-A) to rebuild a position in the company.
General Dynamics is also gaining substantial market share and popularity in the Aerospace sector with its newest plane the G650. The company will begin delivering the planes to customers in the second half of 2012 for a cool $65 million per plane. Barron's notes Gulfstream has already placed an order for 200 planes. The growth and solid increase in demand is due to the raising supply of billionaires in China.
The company’s CEO, Jay Johnson, believes the Aerospace sector will account for between 35 percent and 40 percent of total earnings over the next five years, or almost double the 20 percent it currently represents. Johnson also forecasts margins could increase from its current 13 percent level to the mid 20 percent range.
Investors are apparently liking the Barron's piece as the stock is set to open Monday's session about 3 percent higher.
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