General Dynamics Corporation (GD) has acquired Network Connectivity Solutions, Corp. (‘NETCONN’). The acquired business will be a part of General Dynamics Information Technology, a business unit of General Dynamics. The value of the cash transaction has not been disclosed. However, it is expected to be accretive to General Dynamics' earnings beginning in 2012.
Network Connectivity Solutions provides enterprise information technology (‘IT’) services to the Defense Information Systems Agency (‘DISA’) and other Department of Defense (DoD) agencies. It serves as a prime contractor on DISA's ENCORE II contract awarded in 2008. ENCORE II is an indefinite delivery/indefinite quantity, multiple-award contract for use by military services, DoD, the intelligence community and other federal agencies.
As a prime contractor since 1997, NETCONN has participated in all aspects of DISA data center design, implementation and operation, and is supporting the DoD in preparation of the Federal Data Center Consolidation initiatives. NETCONN also supports net-centric IT operations including data center infrastructure, value engineering, information assurance and edge computing.
Overall, the NETCONN transaction will strengthen General Dynamics' strong portfolio of services and solutions that help the DoD in cutting cost and increasing efficiency.
General Dynamics’ revenue exposure is spread over a broad portfolio of products and services in business aviation; combat vehicles, shipbuilding design, repair and construction; and information systems, technologies and services. Looking forward, key drivers of growth include reviving fortunes for the business jet market, its stable business of U.S. military vehicles (Stryker combat vehicles and Abrams tanks), an ongoing share repurchase program and strong cash flow generation.
However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming high. Also, we have turned slightly cautious about the company’s steadily-dropping order backlog, the recent G650 crash and risks related to the execution of key projects. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
General Dynamics is expected to release its second quarter earnings on July 27, 2011. The Zacks Consensus Estimates for second quarter 2011 and fiscal year 2011 are currently at 81 cents per share and $3.14 per share, respectively.
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. Some of its main competitors are Lockheed Martin Corporation (LMT) and Textron Inc. (TXT).
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