This company is trading at an attractive valuation:
POW (My abbreviation of Price to OWners' earnings ratio) = 8.6
P/FCF = 9.25 (Cash yield of 10.8%)
CROIC (Cash return on invested capital, per F Wall Street formula) = 11.9%
Dividend yield is attractive at 2.8% and has more than doubled in the last 5 years; FCF payout ratio is only 23.5%.
This company's castle is strong and stable.
As an airspace and defense company, its revenues correlate more with world geopolitical situation than the general state of economy. It depends on US government for 71% of its revenues, with 10% coming from US commercial customers, 9 percent coming directly from international defense customers and the remaining 10 percent from international commercial customers. With continued tensions related to Afghanistan, Iran, North Korea, China, India-Pakistan, Africa and Al-Kaeda, defense spending is unlikely to decrease significantly and may increase.
The company's moat is wide.
With products like Stryker armored vehicle and M1 Abrams main battle tank, next-generation Joint Light Tactical Vehicle (JLTV) and Expeditionary Fighting Vehicle , Land Warrior system’s helmet-mounted video screen, next-generation WIN-T tactical network for the U.S. Army (designed to deliver on-the-move Internet-like broadband networking capabilities to dispersed military units), Virginia class submarine, trimaran littoral combat ship, Arleigh Burke-class destroyers, next-generation Zumwalt-class DDG-1000 guided-missile destroyer, T-AKE combat- logistics ship and T-AKE Lewis, Clark-class auxiliary ship and many others, this company is well positioned to compete effectively in the defense spending market. Note that this company and Northrop Grumman are essentially the only two companies that supply ships and submarines to the U.S. Navy. Additionally, Northrop Grumman is now considering a sale or spinoff of their shipbuilding unit, since its operating margin is only 4.8%. The company I am referring to enjoys a 10% operating margin in its shipbuilding unit.
Potential international markets play?
I conveniently “forgot” to mention what I consider a “crown jewel” of this company – its airspace business. I am mainly referring to the Gulfstream aircraft business and related services. The company recently introduced its flagship ultra-long-range, ultra-large-cabin G650 and the super-mid-size G250 aircraft, scheduled to enter service in late 2012 and 2011, respectively . The Aerospace group’s customers have become increasingly diverse in recent years. International customers now comprise almost 60 percent of the group’s order backlog, with strong interest across the globe in Europe, the Middle East, Latin America and the Asia-Pacific region. The group’s customer base has also shifted toward private companies and individual customers, which collectively represent more than two-thirds of total orders.
Gulfstream still remains a leading provider of aircraft for government and military service around the world, with aircraft operating in 37 nations. These government aircraft are used for head-of-state/ executive transportation and a variety of special-mission applications, including aerial reconnaissance, maritime surveillance, weather research and astronaut training.
Revenues for the Aerospace group were 16 percent of consolidated revenues in 2009 (appear to have been hit by recession), 19 percent in 2008 and 18 percent in 2007. Gulfstream is a market leader with a strong brand and the market share of approximately 25%. Currently, there is no competitor for the new G650 model with Gulfstream having at least one model competing in every segment of business jet market. One of the largest Gulfstream customers is none other than Warren Buffet's NetJets.
Summary
As you may have already figured out, the company's name is General Dynamics. Attractively valued and paying a well-covered, meaningful and growing dividend, this company enjoys downside protection with a large portion of its earnings relatively well shielded from general economic downturn. Significant upside potential also exists from the company's Gulfstream business, should economic recovery take hold, especially in emerging markets.
Disclosure: Long GD.
POW (My abbreviation of Price to OWners' earnings ratio) = 8.6
P/FCF = 9.25 (Cash yield of 10.8%)
CROIC (Cash return on invested capital, per F Wall Street formula) = 11.9%
Dividend yield is attractive at 2.8% and has more than doubled in the last 5 years; FCF payout ratio is only 23.5%.
This company's castle is strong and stable.
As an airspace and defense company, its revenues correlate more with world geopolitical situation than the general state of economy. It depends on US government for 71% of its revenues, with 10% coming from US commercial customers, 9 percent coming directly from international defense customers and the remaining 10 percent from international commercial customers. With continued tensions related to Afghanistan, Iran, North Korea, China, India-Pakistan, Africa and Al-Kaeda, defense spending is unlikely to decrease significantly and may increase.
The company's moat is wide.
With products like Stryker armored vehicle and M1 Abrams main battle tank, next-generation Joint Light Tactical Vehicle (JLTV) and Expeditionary Fighting Vehicle , Land Warrior system’s helmet-mounted video screen, next-generation WIN-T tactical network for the U.S. Army (designed to deliver on-the-move Internet-like broadband networking capabilities to dispersed military units), Virginia class submarine, trimaran littoral combat ship, Arleigh Burke-class destroyers, next-generation Zumwalt-class DDG-1000 guided-missile destroyer, T-AKE combat- logistics ship and T-AKE Lewis, Clark-class auxiliary ship and many others, this company is well positioned to compete effectively in the defense spending market. Note that this company and Northrop Grumman are essentially the only two companies that supply ships and submarines to the U.S. Navy. Additionally, Northrop Grumman is now considering a sale or spinoff of their shipbuilding unit, since its operating margin is only 4.8%. The company I am referring to enjoys a 10% operating margin in its shipbuilding unit.
Potential international markets play?
I conveniently “forgot” to mention what I consider a “crown jewel” of this company – its airspace business. I am mainly referring to the Gulfstream aircraft business and related services. The company recently introduced its flagship ultra-long-range, ultra-large-cabin G650 and the super-mid-size G250 aircraft, scheduled to enter service in late 2012 and 2011, respectively . The Aerospace group’s customers have become increasingly diverse in recent years. International customers now comprise almost 60 percent of the group’s order backlog, with strong interest across the globe in Europe, the Middle East, Latin America and the Asia-Pacific region. The group’s customer base has also shifted toward private companies and individual customers, which collectively represent more than two-thirds of total orders.
Gulfstream still remains a leading provider of aircraft for government and military service around the world, with aircraft operating in 37 nations. These government aircraft are used for head-of-state/ executive transportation and a variety of special-mission applications, including aerial reconnaissance, maritime surveillance, weather research and astronaut training.
Revenues for the Aerospace group were 16 percent of consolidated revenues in 2009 (appear to have been hit by recession), 19 percent in 2008 and 18 percent in 2007. Gulfstream is a market leader with a strong brand and the market share of approximately 25%. Currently, there is no competitor for the new G650 model with Gulfstream having at least one model competing in every segment of business jet market. One of the largest Gulfstream customers is none other than Warren Buffet's NetJets.
Summary
As you may have already figured out, the company's name is General Dynamics. Attractively valued and paying a well-covered, meaningful and growing dividend, this company enjoys downside protection with a large portion of its earnings relatively well shielded from general economic downturn. Significant upside potential also exists from the company's Gulfstream business, should economic recovery take hold, especially in emerging markets.
Disclosure: Long GD.
