General Dynamics Corporation (GD) has completed the acquisition of Gayston Corporation’s defense operations for an undisclosed amount. The transaction will be accretive to the company’s earnings in 2013.
Gayston Corporation is a privately held company, which is a supplier of precision metal components that are used in several munitions programs. Besides, manufacturing rocket motor tubes for the U.S. Army's Hydra-70 air-to-ground rocket program, Gayston provides liners and cartridges for 40mm ammunition rounds and components for 60-120mm mortar rounds to its other customers. With approximately 187 employees, Gayston's defense operations operate at its modern facility Springboro, Ohio, that is optimized for aluminum impact extrusion manufacturing.
Gayston's defense operations will become a part of General Dynamics Armament and Technical Products, which is a unit of Combat Systems. This segment provides high-performance weapon and armament systems, composite products and heavy-duty off-road axle and suspension systems to its numerous customers.
The acquisition will expand General Dynamics’ critical manufacturing capability to produce high-precision parts in large quantities at a lower cost. Moreover, it will provide the company with more opportunities to chip in for high-performance weapon system programs.
Of late, the company is busy making acquisitions to improve its portfolio. The company recently entered into an agreement to acquire Fidelis Security Systems, Inc. that will become a part of General Dynamics Advanced Information Systems. Earlier, it had also acquired the Ship Repair and Coatings Division of Earl Industries that became a part of shipbuilding and repair operations of San Diego-based General Dynamics National Steel and Shipbuilding Company (“NASSCO”). Prior to that, the company had completed the acquisition of IPW Holdings, Inc. that became a part of General Dynamics C4 Systems.
Based 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.
General Dynamics’ revenue exposure is spread over a broad portfolio of products and services. Going forward, the company’s diversified revenue structure through exposure to a number of uncorrelated markets will keep the overall growth momentum steady. Other key drivers of growth are the company’s business jet market, its stable business of U.S. military vehicles, an ongoing share repurchase program and strong cash flow generation. At the end of the second quarter of 2012, the company had cash and cash equivalents of $2.54 billion compared with $2.16 billion at the end of second quarter of 2011.
However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming. Also, we have turned slightly cautious about the company’s 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.
The company mainly competes with Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC).
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