General Dynamics (GD, Financial) is a renowned name is the aerospace and defense sector and has a rich history of making machines that define the standards of the space. Its primary businesses include aircraft manufacturing, manufacturing of combat vehicles used in army, making weapon systems, making ships, and providing information technology solutions.
As already evident from its portfolio, a huge chunk of GD’s revenue comes from the defense segment. However, on the back of declining defense budget of the government, several investor and analysts are worried about the upside potential of the stock. Through this report I will be explaining why the stock has great potential to reward its investors and why they should hold on to it.
General Dynamics’ money making business
In financial year 2013, GD’s consolidated revenue was $31.2 billion, of which $8.2 billion or 26.2% came from the aerospace segment. The segment is the second highest contributor to revenue after Information Systems and Technology, which accounted for 33% of total revenues. So, it’s pretty clear how important the aerospace segment is.
Gulfstream Aerospace is the company through which GD operates in the segment, and the company makes aircraft meant for commercial aviation, business travels and security and defense purposes. While the defense spending is shrinking, Gulfstream is focusing on its commercial aviation and business jets to pull up the revenue and compensate for the short falls, and in this context the business jet segment is playing a very crucial role.
Gulfstream 650ER Business Jet. Picture from Gulfstream website
The company is mainly into larger business jets, but has a few mid-sized business jet models to offer also. The latest and the greatest of it offerings is the G650ER, which is an improved version of the highly profitable and very popular G650. After the improvements the jet can fly non-stop for 7,500 nautical miles, 500 nm more than its previous capacity, and can travel almost at the speed of sound at Mach 0.925. In fact, as of now, this is the only business jet that can pull of such a long journey and travel at such high speed.
The jet, priced at $65 million, is the largest offering from Gulfstream in its class and can accommodate a maximum of 18 passengers. The interiors of the model speaks of ultimate luxury and the cabin is well-lit and posh. It even offers the super sophisticated fly-by-wire technology (definitely something that’s to be expected at this price) that makes the model safe and its operations accurate. Analysts and industry experts are very excited about the model and believe the jet has “established a new market segment for the whole industry”. The ace plane maker has already secured as many as 200 orders for the model that’s expected to continue till 2017 to get delivered.
Apart from the G650/ER, Gulfstream offers G550 and G450 that caters to the larger jet buyers, and G280 and G150 that caters to mid-sized private jet buyers. All of these jets are aces in the respective segments and offer great range with great speed, and because of this the jets are also costlier than its peers. But, those who seek great quality machines and understand what it is to own a superb piece of technology, all go for Gulfstream.
Gulfstream way ahead of true competition
Presently there aren’t that many jets out there that can compete with the G650ER. But in the near future Bombardier is going to start deliveries of its iconic Global 7000 and Global 8000 jets. However, that’s not going to happen before 2016 and 2017 respectively. So, it seems Gulfstream has got plenty of time in hand to make big bucks by selling the aircraft. Even the current madness that’s going on about the jet is helping Gulfstream gain more orders and popularity.
Parting thoughts
With the global economy gaining its original form, the market for both commercial jets and business jets are on the verge of expansion. As companies book more profit, they will be lured to get their hands on the super luxury jets that Gulfstream has to offer, and in turn the company will make millions and billions on the back of this rising demand. The wealthy are already very eager to own what’s being referred to as the new symbol of wealth (G650ER) and are willing to shed any amount of money for it. With so much going on, might be in the near future, the contribution of the Aerospace to GD’s total revenues will increase substantially.
