General Dynamics: Buy the Dips - Barron's

General Dynamics (GD) is set to annoint a new CEO this Wednesday. The Street's adoration of outgoing chief Nick Chabraja could spark a selloff of its $90 shares. Buy the dips, Barron's magazine says, because once a new CEO settles in, the markets will quickly realize he's inherited a "well-oiled machine."

"We're going to beat our guidance... in all four [business] segments," Chabraja said during the company's Q1 earnings conference call. Profits during the quarter rose a dynamic 32% to $573 million, and operating margins widened by 1.5% to 12.3%. Even more impressive is GD's $50 billion work backlog, which continues to grow at rates that far exceed its revenues.

The ongoing Iraq war means more restocking of lost and damaged equipment, one of the reasons UBS analyst David Strauss thinks GD will oustrip 2008 and 2009 EPS estimates. He thinks shares will hit $106 within a year.

Strauss concedes Chabraja's exit could impact the company more substantially than quarterly earnings. But Morgan Stanley's Heidi Wood says GD's Q1 blowout, and "resounding market response" to its new G650 corporate jet will more than offset any negative sentiment to the management change.

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According to Bespoke research, General Dynamics is the third-most overbought S&P 500 constituent.

Comments

[User 120461:]

Mind, you featuring a stock in the Barron's is the ultimate short term top for that stock considering all market makers will raise its price on the opening on Monday, because they read the paper and know the effect ( the better stocks, not the dogs).

2008 May 04 12:07 PM

[User 137633:]

That isn't what happened today, AS.

2008 May 05 12:49 PM

[User 120461:]

you are wrong. It opened at 90.75 and traveled down to 90.00 in the first hour. Sometimes when futures are down in the morning, this effect is muted. In addition, if the stock is dog and the market cannot make its mind, meaning not even the writer wants to buy it, but needs to do a PR favor, there will be no reaction. You need to determine the " Bulshit" value of the stock yourself.

2008 May 05 07:07 PM