War boosts General Dynamics' sales

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The machinery required to fight the war in Iraq is keeping at least one area defense company's sales headed up.

General Dynamics, a Falls Church company that makes ships, submarines and tanks for the U.S. military, received a $30.7 million U.S. Navy contract last week and was selected -- along with Lockheed Martin in Bethesda -- to submit a bid to design and implement part of the government's Integrated Wireless Network. The network is designed to provide a nationwide wireless voice and data network for law enforcement, disaster response and homeland security.

Analysts say the steady stream of orders from the U.S. Army -- which now total about 25 percent of the company's sales -- provides a solid base that will continue for years. The Department of Defense is in reset mode, said Paul H. Nisbet, an aerospace analyst at JSA Research Inc. in Newport, R.I., meaning it is rebuilding and modernizing the machinery worn out during the war in Iraq.

"The Army has been receiving the brunt of the extra monies that have gone to [the Department of] Defense," said Mr. Nisbet, who does not own any General Dynamics stock. "General Dynamics is very oriented to the Army programs."

The defense contractor's net sales have more than doubled since 2000 to $21.24 billion last year.

General Dynamics' stock price fell 95 cents yesterday to close at $62.42 on the New York Stock Exchange. It is up about $7 since this time last year.

Banc of America Securities last week resumed coverage of the defense contractor with a $72 price target. Banc of America owns stock and has an investment banking relationship with General Dynamics.

"With its rich exposure to the healthy funded U.S. Army and the benefits of a cyclical upturn in Gulfstream, we think that GD has the potential to sustain above-average growth," analyst Robert Stallard said in his first report on the company, referring to the company's Gulfstream business jet subsidiary.

That business jet line is expected to buoy the stock if or when the defense orders slow.

"GD has a higher non-defense business contribution by virtue of Gulfstream than other large firms and thus we believe its prospects for sustainable growth are greater as defense budget growth should decline," Prudential analyst Byron Callan said in a recent note to clients.

Neither Mr. Callan nor Prudential own stock in the company.

General Dynamics also completed last week a $2.2 billion acquisition of Anteon International, a Fairfax defense technology firm.

"It's another move that the company has been making to build this information technology group that didn't exist in the mid-90s," Mr. Nixbet said. "It's a rapidly growing part of the U.S. government."