With a backlog of $82.7 billion, General Dynamics (NYSE:GD) will be able to continue to expand its business and reward its shareholders via dividends. Despite the fact that the company’s stock failed to show a meaningful performance in recent years, we believe that, at the current price, General Dynamics is an attractive investment. There’s also every reason to believe that the downside of owning the company’s shares at this stage is limited, and with the coverage ratio of over 9x, General Dynamics will be able to easily service its debt and create value at the same time. For that reason, we decided to add General Dynamics to our portfolio.
Strong Balance Sheet Makes the Company a Solid Buy
General Dynamics is the fifth-largest defense contractor in the United States and the sixth-largest in the world. The company is part of the Fortune 500 list, and the majority of its revenues come from North America. For years, General Dynamics has been one of the most important contractors of the US Department of Defense, developing various types of civil and military equipment in fields like aerospace, combat systems, information technology, mission systems, and marine systems. However, despite its systemic importance to the military-industrial complex, General Dynamics' stock failed to perform in recent years, as it was declining since 2018 and only recently started to recover after reaching its 5-year low in March.
Earlier this year, COVID-19 disrupted General Dynamics operations, as some of its divisions were shut down during the initial weeks of the pandemic. As a result, the company disappointed its investors in Q2, since its revenues during the period declined by 3.1% Y/Y to $9.26 billion. However, General Dynamics was still able to make money, as its GAAP EPS was $2.18, and it also managed to generate $622 million in free cash flow from April to June. In addition, despite
